How the best source MRO
Most manufacturing companies have gained strong control over direct materials, but only recently have they begun to focus seriously on fragmented MRO/indirect spend categories. Purchasing's 2006 MRO/Indirect Strategic Sourcing Benchmark Study identifies the practices that deliver highest returns on investment (ROI).
By Anne Millen Porter -- Purchasing, 5/4/2006 2:00:00 AM
Purchasing's 2006 MRO/Indirect Strategic Sourcing Benchmark Study asked more than 300 qualified participants to cite measured value their groups have delivered to their companies' bottom lines through strategic MRO/indirect sourcing—be it through improvements to productivity, performance, competitiveness, or cost. Here is a snapshot of how study participants classify their performance:
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51% of the study population place themselves in the bottom segment—delivering less than $1 million worth of total value, so far,
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44% make up the middle segment—claiming between $1 million and $100 million worth of value, and
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5% comprise the top segment—measuring more than $100 million in value delivered.
Part of this ROI stratification can be attributed to company size—that is, the more they spend on MRO, the greater their opportunity to save or deliver other types of value. Time also plays a role: The study finds the top performers have simply been working longer at MRO strategic sourcing than those falling into the mid- or bottom-value tiers. Still, as the data here show, top-performing strategic MRO procurement groups also differentiate themselves substantially in terms of motivation, management focus, practices, people and technology investments they've made in support of strategic MRO/indirect sourcing. Check the findings here and compare them to your own organization's strategies.
The research for this report was made possible by 3M Maintenance Repair Operations (MRO).
About the study
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 High performers are more than twice as likely to have centralized sourcing activities than lowperformers. 88% of highest performers say the trend toward centralization will progress over the coming five years. |
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How long has your organization been working to centralize sourcing and/or buying of MRO/Indirect goods? (mean response)
ROI timeline (by reported performance level) CPOs take note: In terms of timing your return-on-investment (ROI) promises to senior execs, big results in strategic MRO and indirect sourcing begin to coalesce at around four years. |
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Four key practices differentiate the best from the rest (frequency by reported performance level)
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Measure supplier
Collaborate with
Deploy & integrate
Hire big brains
 38% of high-performing organizations have focused on obtaining line worker buy-in for centralized MRO sourcing vs. just 17% among lower performing organizations. Medium-to-high performers also focus more frequently on winning buy-in from managers at the business unit level. |
Be big brotherHigh performers use technology to combat non-compliance 4x more frequently than weakest performers. |
| Measuring success All emphasize…
…but high performers are…
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Tech tools All emphasize…
…but high performers are…
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Top 3 challenges
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Compliance counts
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MRO/indirect benchmarks
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Why they pursue strategic MRO/indirect sourcing
Reducing MRO goods prices is, by far, the number one motivation for strategic MRO/indirect sourcing, and that goes across all performance levels. Beyond that, Purchasing's study finds that—
| Top perfomers are less likely to focus on cutting overhead costs... 
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...more likely to focus on increasing productivity
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Top perfomers are less likely to focus on cutting costs of doing business with suppliers... 
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...more likely to focus on collaborating with MRO suppliers 
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Going to the next levelEven top-performing organizations continue to struggle with certain challenges. Purchasing's study uncovers two interesting trends: 1. Top performers are more likely to be struggling to establish good systems for classifying MRO goods and services. CONCLUSION: This may be anoutgrowth of their attempts to move MRO spend analysis from infrequent,manual processes to real time, automated ones. 2.Top performers are more likely to be fighting for support from mid-level managers throughout the corporate organization. CONCLUSION: This may be an outgrowth of their attempts to take purchase price savings out of departmental budgets. |
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