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Insight

Strategic Sourcing: 5 Challenges to Mitigate in MRO

Maintenance, Repair, and Operations (MRO) can be a difficult category for strategic sourcing. However, following a proper methodology can mitigate key challenges faced by procurement.

There are many challenges to consider when procuring MRO supplies. Below are 5 common issues, and how strategic sourcing can offer solutions:

1. Fragmented Supplier Landscape 

MRO procurement often involves an array of suppliers, each specializing in different product categories or services. Managing relationships with numerous vendors can be time-consuming and complex, leading to inefficiencies and increased costs.

A strategic sourcing methodology, including supplier reconciliation, enables clients to consolidate their supplier base and leverage volume to negotiate better terms and streamline procurement processes.

2. Inventory Management for Strategic Sourcing

Balancing adequate inventory levels with cost containment is a continuous challenge within MRO procurement. Overstocking leads to excess carrying costs, while understocking may result in costly downtime and delays in production.

Demand forecasting and inventory optimization are strategic sourcing techniques that help clients find the right balance, ensuring that critical maintenance supplies are available when needed without tying up excess capital.

3. Price Volatility and Cost Control for Strategic Sourcing

Variable commodity prices and market dynamics can make cost control challenging within MRO. Without a proactive strategy, an organization risks being at the mercy of market forces, leading to budget overruns and margin erosion.

Strategic sourcing provides deep supply chain insights, allowing procurement to proactively plan for various market scenarios. Incorporating artificial intelligence (AI) into the planning process can help organizations identify upcoming market risks before prices are affected. This empowers the business to negotiate long-term contracts, implement price protection mechanisms tied to indices, and explore alternative sourcing options to mitigate the impact of price volatility and achieve cost predictability.

4. Quality and Compliance 

Ensuring the quality and compliance of MRO products and services is a principal concern, especially in regulated industries such as aerospace, healthcare, and manufacturing. However, with a diverse supplier base and data silos in procurement, production, quality, and finance, maintaining consistent quality standards can be difficult.

Strategic sourcing should involve rigorous supplier qualification processes, performance monitoring, and compliance audits to mitigate quality risks and uphold regulatory requirements. The data from these exercises should be centralized, allowing procurement to view overall quality. Finally, a supplier improvement process should be instituted to mutually work with underperforming suppliers.

5. Data Quality and Visibility in Strategic Sourcing

Harnessing information effectively is critical for informed decision-making in MRO procurement. Many organizations struggle with data silos, legacy systems, and limited analytics capabilities, hindering their ability to form actionable insights. In fact, many of our clients have identified the need for better data confidence as a driving factor in their procurement digital transformation.

Strategic sourcing initiatives should incorporate advanced analytics tools and data visualization techniques to unlock the full potential of procurement data, enabling clients to identify trends, optimize spending, and drive continuous improvement.

 

By addressing these challenges through strategic sourcing, businesses can increase efficiency, reduce costs, and enhance performance in the MRO, ultimately driving sustainable growth and competitive advantage in the marketplace. At Velocity Procurement, our Spend Management practice collaborates with our clients to navigate the challenges of MRO strategic sourcing, offering tailored solutions to rationalize the supply base, optimize contracts, mitigate pricing variances, and identify opportunities that enhance the strategic sourcing function. Contact us today to explore how our expertise can directly influence your procurement strategy, resulting in tangible benefits reflected in your year-end outcomes. Contact us today to learn more!