ROI = MRO/Indirect

The Indirect Material spend category has historically included everything necessary to support the needs of operations. Some have included corporate level expenses like travel and entertainment, some have included logistics costs and/or periphery contracts for services such as grounds maintenance/snow removal. All would agree that the category spend MRO is generally the largest spend within Indirect, and the most problematic. You can set budgets for travel and entertainment and post against them, same with logistics and grounds maintenance contracts. But, how do you create and manage a budget for MRO? Further, what needs to happen to keep MRO from blindly bleeding profit from the site?





So, first let’s put names to the product categories typically found within the MRO spend category. They are categories like-

Cutting Tools and products                          Abrasives and related

Fluid power                                                      Pneumatic

Hydraulic                                                          Welding                                                           

Lubricants                                                        Electrical/Electronics

Power Transmission                                       Automation

Janitorial                                                           Safety/PPE

Filters                                                                Gases

Plumbing                                                          Mill supplies

Coolants                                                            Blue Print Tooling

Chemicals                                                         Office Supplies

Asset Warranty/Repair                                 (might of missed a few)

Second, lets agree that this category spend is typically an expense to budget, has no ROI capability in its present state, and a profit drain (admitting this is the first step to changing it).

Once everyone agrees on what is MRO, we can go about the business of establishing this spend category as one that is NOT a drain to profit margins and can actually produce an ROI on its own.

So, what needs to happen to change this negative environment of improper buying, overspending, misspending, mismanaging, unmonitored disbursements, wasted time, lost product, uncaptured warranties, undocumented/unmanaged repairs, unreturned product, so the right products can perform better, the spend can reduce, and the category can return to the black-where it belongs?

When properly managed by a team of professionals that perform the functions as their core competency, you will quickly see that this spend category can change from being a source of excruciating meeting debate, to one where not only are you covering the costs of managing but provides for improvements in efficiencies outside the walls of the crib or storeroom.

For example-

  • Machine uptime increases as a result of machines no longer down for parts or products that were thought to be in the system but aren’t.
  • Operational team members are operating machines/performing functions that support generating profit rather than walking to, or standing at a stores window waiting for storeroom personnel to find something that should have a specific home location and readily available.
  • Point of use tools are implemented to insure associates have what they need, when they need it, without the need to go looking for it.
  • Expediting costs are reduced or eliminated by a properly managed pull system that understands the environment, knows what will be needed, when, how much, and has properly generated min/max/order signals in place to keep the right product flow moving and available.
  • The right vendor base has been established, and proper P2P discovery has been made and/or global contract negotiated, and material flow at the proper rate has been implemented to keep the continuity of supply strong and uninterrupted. Professional communications have been established to insure this aspect is solid. Purchase volumes have sound pull volume support, with intelligent margin of error consideration.
  • Product warranties have been identified, input into the proper management system, and maintained to keep replacement spend to only necessary product. Continued warranty on same aspect is followed with manufacturer to insure engineering focus is placed on eliminating failure, and eliminating costs associated.
  • Proper management procedures are in place to insure accurate functionality of every aspect of the process is performed on time.
  • Accurate, daily cycle counting of products performed in a usage driven, engineered fashion keeping the count on every sku availability count accurate, and the system sound.
  • Spend/Usage accountability by department, product line, or down to the badge swipe.

When a properly implemented and managed Indirect/MRO system has been put in place and monitored, the expense of this spend category will quickly turn into the environment it can and should be managed in. And one allows profit margin to grow as a direct result of the commitment placed on it.

For more on the subject, or discussion on how to initiate a service contract for these services contact Spence at ValuePoint Material Solutions with the information below.

Spence Webb
Business Development Manager
Mobile: (989) 295-0422
5310 Hampton   Suite 1, Saginaw, MI 48604