Death and taxes may stay the same but an MRO budget should not. Use these five tests to limit hidden operations costs in your business.
Consumption, order policies, and purchase orders can all have an impact on your MRO budget and operating costs. Your maintenance, repair, and operations budget, on the other hand, should not be a fixed cost. Many executives consider MRO to be a bucket of fixed expenditures. However, digging deeper can limit hidden operations costs and yield significant savings.
When analyzing these procedures at industrial sites, it’s not uncommon for experts to discover savings of up to 10% of the operations budget, and occasionally even more. Here are the top five hidden MRO costs and how to reduce them.
1. Limit costs by checking for unnecessary consumption.
During the budgeting process, managers frequently regard the consumption of indirect commodities as a recurring expense. Therefore, they see things such as supplies and tools as an unchanging cost from year to year.
However, by making consumption more visible and implementing controls this can change. Furthermore, if there is a minimizing of needless inventory, there is a good chance you can minimize consumption. Less money is spent when there are fewer MRO items in use.
The bottom line is that you shouldn’t assume your MRO usage is constant. You can limit hidden operations costs by simply questioning those recurring expenses.
2. Limit hidden costs in purchase order charges.
It’s easy to overlook the fact that issuing a purchase order costs money. Associate labor dominates the costs of your PO process.
According to studies, the cost of issuing a PO is frequently greater than the value of the product. These PO expenditures may appear elsewhere on your P&L. However, they can still help you save money.
How can you make a dent in these expenses? The greatest cost savings come from automating some or all of the PO processes.
For example, a fully manual approach can cost hundreds of dollars for every PO. Switching to an electronic process might halve expenses. In addition, fully automating it could halve costs again or yield even more savings.
To summarize, spending money costs money. Therefore, limit hidden operations costs by making your PO process as efficient as you possibly can.
3. Limit hidden costs by maximizing PO efficiency.
Inappropriate order policies can also drive up your MRO costs. This is true even if they don’t show in your expenses.
A supply crib loaded with an item from an untrustworthy provider is a common occurrence. Even if these parts aren’t frequently in use, the order policy may retain a reasonably high level of inventory for them.
In addition, they may require large minimum orders, or have a program that is set to reorder at quite high inventory levels.
Think about a crib with a maximum inventory of five items and a reorder threshold of four. This means that the facility must reorder each time one of these parts is issued. This would be true even if they are only occasionally in use. This, therefore, leads to higher transaction expenses, such as purchase orders, shipping, and so on.
Bottom Line: In order to limit hidden operations costs, examine your order policies to reflect only the amount of supply you actually require.
4. Limit costs by limiting providers.
Consolidating MRO spending from numerous suppliers and consolidating it with a single distributor can save money in some cases. Consolidation savings may include more than just costs when you go through this process.
Using a single distributor can help you save money on MRO materials and reduce transactional costs. Transactions can become simpler and you can consolidate shipments to save shipping costs.
In addition, certain distributors can even give supply chain solutions to further cut MRO use and costs. That way, volume discounts may become the least important savings in this move.
In the end, consolidating with a single distributor who can supply additional services can increase productivity and lower expenses.
5. View your business from the total cost of ownership.
Finally, many businesses incur higher-than-necessary MRO costs because they approach the budget from the perspective of product price rather than the total cost of ownership.
Therefore, improving your supply chain procedures and boosting their efficiency can save you more money.
In addition, aligning yourself with the highest-value distributors and suppliers can result in significant cost savings.
Bottom Line: If you focus simply on price rather than the total cost of ownership, you’ll miss out on significant additional cost savings.
