MRO processing costs can be twice the cost of the product itself, but it doesn’t have to be that way
Procurement teams and engineers face many challenges regarding the maintenance, repair and operation (MRO) of their organisation’s assets and facilities. The supply chain for indirect materials is complex due to the number of stakeholders involved, a fragmented supply base and the quantity of products that are split across categories.
There is also constant pressure from senior management to reduce costs. One way to respond to these challenges is by streamlining processes – and here is an example of the benefits this can generate.
The challenge
In a busy hospital, 24/7 operational reliability can be a matter of life and death. It’s an intense environment and there is plenty of scope for something to go wrong, break or simply stop working. Whether it’s a faulty power board or a door handle that has come loose, in a hospital it needs dealing with – fast.
At this particular hospital, the facilities are used 24 hours per day by more than 10,000 members of staff and a million patients annually. Problems arose because:
• Site engineers took responsibility for finding replacement items
• Several hours could be spent chasing the best prices and delivery options on a single, low-value item
• Every purchase had to be accompanied by a purchase order, creating a significant admin burden
• There was a lack of central control over stock
• No one could be sure what had been ordered and what was already in stock
• Purchasing was not broken down in a granular, auditable way
The solution
Although the hospital already had a relationship with RS and access to its strategic purchasing platform, PurchasingManager™, the benefits were not being fully exploited. RS therefore helped develop a strategy to rationalise all MRO purchase processes, including streamlined internal admin, robust supplier contracts, and compliance with those contracts.
After a detailed presentation to key stakeholders, the purchasing platform as reinstalled and a new training schedule was mapped out with a concerted effort to take ad hoc purchasing away from engineers and contractors.
The outcome
If you want to get better results from any activity, you have to be able to measure it. Only being able to see a composite MRO spending figure meant the hospital never understood if money was being spent in the best possible way. That has now changed.
There have been important related benefits too. Centralising spending has:
• Eliminated the problem of engineers spending too much time on low-value activities
• Given the hospital trust an improved negotiating position
• Delivered an unprecedented level of spend-visibility
• Allowed budget-holders to see which items are being purchased, with what frequency, who by and for what uses
Centralised spending also means a purchaser can have a view on the total cost and start to develop a better, more strategic relationship with a supplier – moving from a purely transactional setup to a trusted partnership.
There have been major day-to-day time and cost savings as well. Under the old process, a purchase order had to be raised for each order and the process generated a huge admin trail. With the new system, engineers simply log on to PurchasingManager™ and straightaway place their orders for next-day delivery. Fixed order values are pre-approved, removing the need for purchasing admin for low-value orders.
The time taken to process orders has fallen from 79 minutes per order to 47 minutes per order, a drop of 40%. The process cost per order has fallen from £66 to £39, a fall of 41%. Over the course of a year, this equates to 89 hours and almost £6,000 saved – time and money that this hospital can spend elsewhere instead.
For more information about RS PurchasingManager™, click here
