No matter the business, and no matter the industry, money is what keeps the gears grinding and the wheels turning. As such, companies that have a stronger sense of control over their cashflow have a leg up on their competitors. This includes being able to dictate funds where they’re needed most, and address the companies highest needs first, while still covering aspects like MRO spending.
There are many areas that procurement professionals need to cover and track throughout an organization. Developing and utilizing comprehensive and strategic spend management can help organizations make informed decisions about fund-allocation and budgeting.
Maintenance repair and operations (MRO) spending is one of the most vital functions of a procurement department. Therefore, making sure to consider MRO spending in the overarching spend management strategy is vital to the continual success of the organization.
Why Maintenance Spending is Crucial
MRO is crucial to the operational integrity of a business or organization, because it makes sure that the proper resources are allocated through the appropriate channels when necessary. In other words, MRO spending keeps equipment updated, maintained, and operating at optimal efficiency.
Not only does MRO spending ensure that the equipment is maintained and operating at high levels of efficiency, but it also ensures that machinery is safe to use for the employee. Complying with safety and health standards within any industry is an absolute must.
This doesn’t only provide a safe place of work for employees and staff, but also reinforces the brand as one to be trusted by workers, partners, and customers alike.
MRO Spend Metrics To Track
Understanding that cash flow needs to be traced and trackable is one thing. Beginning the process, on the other hand, is a little trickier. To get started, it’s important to understand which MRO metrics the procurement department needs to track in the first place.
Here are some of the most telling MRO metrics that your procurement department should be tracking.
Percentage of Procurement Budget
This is a big one. MRO spending is going to reflect a percentage of the overall procurement budget. But how much budgeting does a procurement team actually need to consider for MRO?
The answer is: it depends. Each organization is going to have slightly different maintenance, upkeep, and overall MRO needs. However, that being said, on average, MRO spending should account for no more than a maximum of 10% of the overall procurement budget. The comfortable range that most procurement departments report for MRO spending is 3-10% of the total budget.
No inventory management system is perfect, or even one-size-fits-all. On top of that, human error will always play a role in organizational systems – even when they’re powered by technology. After all, that technology is built by human hands.
Messy inventory management can lead to a surplus of one-time purchases. These purchases unnecessarily inflate the budget, and cause excess spending and inventory. Implementing stronger inventory management practices can reduce these inefficiencies.
Reducing flaws in inventory management can yield stronger spend visibility, lead to higher consumption rates, and better supplier accountability. Keeping reactionary purchases under 2% is considered an industry best practice.
MRO inventory also needs to be tracked and accounted for. Due to the way that most companies will account for MRO supplies or goods that are on hand, it’s important to minimize the amount of time these supplies show up on the books.
As such, it’s become a staple to only carry these MRO expenses for about a maximum of 30 days or a month. That way, companies don’t have unnecessary MRO expenses hanging onto their budgets, unnecessarily inflating them further.
Stronger Spend Management With Help From ProcurePort
Spend management is a necessary activity in any procurement department. Giving companies insight into their cash flow, budgeting, and spending habits, spend management allows leaders and decision makers to make choices powered by real data and valuable insights.
ProcurePort is the reliable and premiere information source for everything procurement. With information on the latest industry standards and best practices, to providing some of the most sophisticated procurement technologies on the market, come to ProcurePort for any and all of your procurement needs.