Most companies need to maintain a stock of spare parts, supplies and other materials that help keep their businesses running. Manufacturers need components and tools on hand they can use to quickly repair machines and keep production lines operating. Retailers and service organizations need basic items like light bulbs, cleaning materials and office supplies.
Collectively, these items are known as maintenance, repair and operations (MRO) inventory. Because MRO inventory can account for a significant portion of a company’s overall procurement spend, it’s important to apply efficient MRO inventory management processes that minimize costs while ensuring the company has just enough inventory to meet its needs.
What Does MRO Stand For?
MRO stands for maintenance, repair and operations. It refers to all the activities needed to keep a company’s facilities and production processes running smoothly. For example, MRO includes routine maintenance and repair of production machinery, as well as everyday activities such as cleaning and obtaining office supplies. Boston Consulting Group indicates that MRO costs can be as high as 4.5% of revenue in some industries, so reducing MRO spending can have a significant impact on the bottom line.
What Is MRO Inventory?
MRO inventory comprises the consumable materials, equipment and supplies needed for maintenance, repair and operations activities. MRO includes items that are used in a production process but — unlike raw materials — are not incorporated into a company’s finished products. Spare parts and tools for repairing manufacturing equipment are MRO inventory items, as are gloves and goggles used by plant workers. MRO inventory affects the productivity of virtually every department, so it’s vital to maintain enough MRO inventory to keep the business running while also not overstocking.
MRO Inventory Examples
MRO inventory includes a very wide range of equipment and supplies. Examples include:
Maintenance and repair supplies for production machinery: Machine oil and other lubricants, light bulbs, valves, bearings, cutting fluid and spare parts, such as motors and gears.
Safety equipment: Masks, ear plugs, hard hats, respirators and face shields.
Janitorial supplies: Disinfecting and cleaning sprays, liquids and powders, mops, buckets, brooms, rags and dust cloths and disposable gloves.
Office supplies: Personal computers, printers and toner, furniture, paper, pens and pencils.
Laboratory supplies for testing or research: Beakers, syringes, test tubes and scales.
What Is MRO Inventory Management?
MRO inventory management entails buying, storing, using and replenishing all products that fall under MRO inventory. Like with other types of inventory management, the goal is to perform each of these activities as efficiently and economically as possible so that the business has the right MRO inventory on hand at the right time, at the right cost. Managing MRO inventory can be complex and time-consuming because companies may need to buy and store hundreds or even thousands of different items.
Why Is MRO Inventory Management Important?
MRO inventory management plays a critical role in keeping the business running. For example, if a component of vital factory machinery fails in the middle of a production run, the entire manufacturing process can grind to a halt. Without a spare part available, the impact can snowball into hours or even days of downtime while employees try to locate, order and wait for the component to arrive. A business may also lose revenue and endanger customer relationships if the downtime means contracted delivery deadlines are missed. It’s easy to see how not properly managing MRO items can have a major impact on your entire supply chain.
On the other hand, stockpiling MRO inventory to avoid running out can also cause problems: Buying and storing excess inventory ties up capital that could otherwise be used to fund business growth. Some items could even become obsolete if they’re stored too long.
MRO Inventory Management Challenges
Companies often underestimate the importance of MRO inventory management, despite its complexity, cost and impact on operations. Historically, some companies have treated MRO inventory management as an afterthought, paying much less attention to managing this inventory than other types like raw materials and finished products. MRO inventory management is often fragmented, with different departments buying and tracking their own MRO items, which can make it more difficult. This leads to a number of challenges, including:
High acquisition costs. Companies buy thousands of different MRO items, many of which are low in value. Without an efficient, centralized purchasing process, the cost of acquiring individual items can be more than the price of the items themselves. One study estimated that each $1 million in MRO spending could create 3,500 purchase order cycles, each requiring separate purchase orders, invoices and receipts. In addition, highly paid technicians may spend time searching through parts catalogs and tracking deliveries instead of on maintenance activities.
Duplication and maverick spending. Individual departments accumulate their own caches of identical supplies to ensure they have enough to meet their own needs. This can occur even when there’s a formal, companywide procurement process if departments feel that process doesn’t get them the right supplies quickly. This duplication of effort and inventory increases overall acquisition and storage costs.
Tracking inventory. Without a centralized inventory management system, companies may lack visibility into the true availability of specific items. One department may believe an item is out of stock when, in fact, another department has appropriated the item to meet its own needs. If the items in question are critical, such as spare parts for manufacturing equipment, these oversights can have serious consequences for the business.
Poor visibility into demand. Without the ability to monitor overall consumption of MRO inventory, companies are unable to accurately forecast, budget and plan to meet demand.
Components of MRO Inventory Management
MRO inventory management has several core components, although the way those components are implemented can vary widely.
Identify MRO items. Identify all the components and supplies the company needs to stock, as well as their specifications and the amount currently held. Some items may be unique to specific production processes or groups, while others may be used by many groups across the company. Storing the specifications of each item helps groups determine whether it is what they need. Being able to quickly identify which items are on hand is critical in the event of a production problem.
Organize inventory. Figure out how to organize MRO inventory to efficiently meet the needs of the organization. Companies often choose to store all items in a central warehouse or storeroom, but in some cases, it may make more sense to store items near the groups that will need them. It’s essential to implement a system for organizing items within each location so that workers can quickly locate them.
Create an MRO inventory procurement process. An effective procurement process enables the company to buy the right quantity of MRO products cost effectively, ensuring it always has what it needs. The process includes identifying the items needed, selecting suppliers, generating requisition requests and approvals and tracking orders.
Establish inventory control. Monitoring inventory levels, forecasting demand and timely replenishment are all part of inventory control.
How to Manage MRO Inventory
Managing MRO inventory involves buying, stocking, distributing and replenishing supplies at the lowest practical cost. The goal is to ensure adequate stock is available while considering storage space and budget. Here are four key steps to effective MRO inventory management:
Determine which MRO processes are critical for business continuity. Companies should always have a supply of the MRO items that support those critical processes. These are the things businesses need to function on a daily basis.
Perform an audit. This will determine whether all the required MRO inventory is on hand or whether there is obsolete or unnecessary inventory that can be eliminated. Following up with regular physical counts can help ensure a company maintains accurate inventory counts and provides visibility into stock on hand.
Select strategic suppliers. Supplier selection is a critical aspect of managing MRO inventory. Channeling the bulk of purchasing to a few strategic distributors can simplify acquisition and reduce administrative costs. But there are many factors to consider, including product quality, supplier dependability, shipping speed and shipping cost.
Forecast demand. Examine seasonal patterns of inventory use and adjust purchasing accordingly. This allows a company to ensure it buys enough to meet demand while minimizing carrying costs and the risk that inventory will become obsolete.
MRO inventory key performance indicators (KPIs) help companies track how well they are managing MRO inventory and identify areas for improvement. Commonly used KPIs focus on acquisition costs, efficiency and the ability to meet demand. They include:
MRO spending as a percentage of total procurement: Lower is better, as long as the company maintains enough inventory to meet its needs. The percentage of total spending directed to MRO varies by industry; retail, manufacturing and consumer packaged goods industries tend to hold more MRO inventory than other sectors.
Supplier consolidation: This is the percentage of overall MRO spending directed to the company’s selected strategic suppliers. A rule of thumb is to direct 80% of overall spending to 15% of suppliers.
Days inventory on hand: Idle inventory is costly. Keeping stock below 30 days is optimal for many industries.
Percentage of orders with rush shipping: Rush orders are expensive and should therefore be the exception, not the rule. A high percentage of orders that include rush shipping may also indicate other problems with an inventory management process, such as inaccurate demand forecasting.
Stockouts: Stockouts indicate the company is failing to manage MRO inventory so that it always has the supplies it needs. This metric calculates the number of stockouts compared with total items picked and should be less than 1%.
4 MRO Inventory Management Best Practices
Following best practices for MRO inventory management can help keep spending within budget while making sure inventory is available to quickly meet all requirements. Among them:
Educate employees. Make sure everyone across the company understands the MRO procurement process and how to find the inventory they need. Providing opportunities for procurement staff to meet with different groups within the company can help. This can reduce maverick spending and reduce costs.
Locate MRO inventory centrally. This facilitates tracking and helps to eliminate the potential duplication of purchases.
Consider vendor-managed inventory. Some suppliers will manage your inventory on site, monitoring inventory levels and automatically restocking when items are low. This frees your employees to focus on other tasks and streamlines the procurement process.
Use inventory management software. Software makes it easier to track inventory, forecast demand and monitor performance.
Manage MRO Inventory With Inventory Management Software
Inventory management software can help companies ensure they have just enough inventory to meet demand, while minimizing costs and administrative efforts. Software can provide real-time insights into stock levels and inventory en route. It automates replenishment, taking into account factors such as minimum stocking levels and lead times. Additionally, inventory management software tracks historical trends, making it easier to schedule orders to build up stock when high demand is anticipated and to decrease orders at off-peak times.
The end result is less time and money spent tracking down MRO products and putting in rush orders when you realize you’re missing a key part or tool that will impact your operations. The investment in an inventory management system will quickly demonstrate its value by helping you run a smoother operation.
Efficient MRO inventory management is important for just about every business. MRO inventory enables the business to operate efficiently and minimize costly downtime. Since this inventory can account for a significant portion of a company’s spending, it’s also important to minimize the cost of acquiring and storing it. Software can help businesses better track and automatically manage inventory levels, ensuring the company has just enough to meet its needs.
MRO Inventory FAQs
What does MRO mean in supply chain?
Maintenance, repair and operations (MRO) refers to a range of activities that keep a company running on a day-to-day basis. Companies rely on their supply chains to provide the materials, tools and components they need for MRO activities. The items that each company stores for this purpose are known as MRO inventory.
What does MRO include?
MRO inventory includes consumables, tools and spare parts. Examples include janitorial supplies, safety equipment, maintenance and repair supplies, technology, office supplies and laboratory equipment.
Why is MRO important?
Without MRO inventory, manufacturers would not be able to operate. Companies depend on having items as varied as replacement parts, janitorial supplies and office supplies on hand so their daily activities can continue uninterrupted.