Which Critical MRO Supply Chain Metrics Do You Need to Track?

Oct 1, 2021 | Accessories and Consumables, Industrial | 0 comments

Industrial MRO is a term you might have heard before. It is an important part of most businesses these days. In essence, MRO refers to the maintenance, repair, and operations of equipment and machinery that is used in an integrated supply chain management model. 

If the MRO processes are not effective, it can lead to several issues like unplanned downtime of equipment/machinery

  • Stock depletion of critical components or equipment or machinery.
  • Higher freight costs. 
  • Frustration among the stakeholders.

So, ineffective MRO is bad for business processes. It’s expensive and can make many key players very angry or frustrated. 

To help you make the MRO more efficient, you should get a better handle on the MRO processes. For that, you need to focus on the following metrics:

  1. MRO Spend

The MRO spend needs to be about 3 to 10 percent of the overall procurement budget. The maintenance and repair inventories must represent a low percentage of the entire production inventory. 

  1. Percentage of Maverick/Unaccounted Spend of Procurement Budget

If the accuracy of inventory is poor and you have a lot of reactionary buys, it might lead to unwanted inventory growth and budget inflation. You need to keep the percentage of Maverick or Unaccounted Spend to procurement budget low. It will lead to better visibility, more supplier accountability, and more efficient consumption. The percentage should be less than 2 percent of the total procurement budget of an organization.

  1. Days Inventory on Hand/Inventory Turnover

When MRO inventory sits there, the cash of a business is tied up. Many organizations expense MRO supplies at the time of purchase so, you must reduce how long these expenditures might lag on the books. It is advised that the days on hand should be fewer than 30 days.

  1. Supplier Roster Contribution

MRO buyers must manage the number of suppliers who can cater to 80% of the spend. The buyers should also try to consolidate the number of suppliers to the level of about 12 to 15 percent of their suppliers servicing 80% of the overall spend they have.

  1. The Ratio of Orders to Replacement Orders

Though rush orders are needed from time to time, a heavy volume of rush orders can increase spend. It can lead to shrinking of margins or cost overruns. So, it is vital that you maintain a ratio of 1:8 or 1:10 to reduce the negative impacts. Once the ideal ratio is reached, the procurement should partner with operations to ensure that inventories meet that ratio.

  1. Stock Outs

Stock-outs are unwelcome news. They might lead to rush orders, production delays, and an increase in MRO costs. This metric must calculate the number of stock-out occurrences that happen as compared to the total items that were picked. It should be less than 1% on a daily/weekly basis. 

Final Words

If you implement these KPIs, your organization will be able to forecast spend better, deal with disruptions effectively and reduce impact to business areas like operations, procurement, maintenance, and finance. 

If you are looking for an industrial distributor who offers excellent MRO products and engineering services at the right prices and at the right time, connect with EXIM Engineering. Call now on +1 (714) 758-1000

Reference:

https://www.sdi.com/resources/articles/5-critical-mro-supply-chain-metrics-you-should-be-tracking