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Three Best Practices for MRO Sourcing

Procurement teams don’t just ensure that the raw materials, components, and parts arrive on time, on budget, and on spec. In many organizations, the procurement team is also responsible for MRO sourcing. That’s maintenance, repair, and operations. 

In other words, procurement has the added responsibility of keeping the company and production running. It makes sense, given the procurement team’s expertise. After all, MRO is a critical part of any organization’s success. In addition, there are many hidden costs with MRO and many opportunities for significant cost savings.

However, sourcing teams quickly discover that MRO is very different from direct procurement.


The Five Biggest Challenges of MRO

Naturally, MRO is not easy. It’s complex, it can be labor-intensive, and achieving cost savings can be elusive. A procurement team that takes on this aspect of company operations will quickly run into a series of challenges. These five are the classics:

 

MRO Sourcing Challenge 1

The quality of historical data is typically lacking. Different staff members and different departments will have varying methods for entering data, and terminology doesn’t always match. Different suppliers might use different part numbers as well. And then there are the everyday typos. Over time, the errors and differences compound, and data quality gets worse.

 

MRO Sourcing Challenge 2

An MRO often involves a market basket with many SKUs, each of which may have a low transaction value. Suppliers aren’t necessarily interested in spending the time to supply pricing on every single line item.

 

MRO Sourcing Challenge 3

An MRO may have variable lead time requirements for different line items. Some of the products or parts may be needed immediately, while others can wait for several weeks.

 

MRO Sourcing Challenge 4

The sheer number of requirements can make managing an MRO a challenge. There are often many line items, each of which might have different minimum order quantities, different lead times, and other requirements. Some might be conditional on others, requiring the sourcing team to filter out what might otherwise be a winning bid based on the lowest price because the supplier is unable to meet a deal-break condition on one of the other line items.

 

MRO Sourcing Challenge 5

Coverage by suppliers is also a big challenge with MROs. Because there are so many line items, it’s common to run into a situation where one supplier is only able to bid on the first 100 line items, while a second supplier’s coverage extends to only the final 50 items. Variable coverage significantly complicates the MRO bidding process.

Fortunately, there are ways you can manage the challenges involved in an MRO RFP. We’ve put together a list of three best practices for MRO sourcing. With these in place, you can transform MROs from being a headache to being a big win for your company.


MRO Best Practice Number One—Automate

The nature of MROs—with multiple line items, conditional logic, numerous requirements, and variable pricing—means they can quickly devolve into a pivot table nightmare. 

To avoid this scenario, the first MRO best practice is to automate the process as much as possible. In particular, focus on an automated methodology for collecting your conditional logic and your pricing through the same workstream. Doing so means that instead of spending hours, days, or even weeks working with various pivot tables and making manual comparisons, you can access an award tabulation within seconds of receiving your quotes.


MRO Best Practice Number Two—Use Target Pricing

During an MRO RFP, a lot of time can be wasted in going back and forth with suppliers with questions about pricing. That’s why the second MRO best practice is to use target pricing. Doing so means suppliers have an expectation of the price you’re looking for, so they can either bid or not bid, saving everyone time. 

Studies on target pricing have shown that this procurement strategy influences supplier behavior. In fact, it encourages suppliers to offer better pricing. 

The ultimate method for target pricing is to employ an intelligence engine that automatically produces your optimal target pricing. This advancement has only been made possible by the adoption of machine learning and artificial intelligence by leading predictive sourcing software like Arkestro


MRO Best Practice Number 3—Clear Communication

Some of the most difficult challenges in an MRO RFP are essentially self-inflicted. They arise because of poor communication with suppliers.

Too often, procurement teams fail to communicate their coverage expectations to suppliers. This can lead to many problematic scenarios during the bidding process. For example, suppliers may only bid on a few line items of a large market basket. A supplier might offer good pricing, but if you award the business for just a few line items, you miss out on potential volume discounts. You can easily end up with the so-called “Singleton” problem. That’s where you have many suppliers bidding on your MRO, but there’s no real competition because each is bidding on different line items.

Employ the final MRO best practice—clear communication. You’ll find MROs are faster, far less labor-intensive, and your company will reap the benefit of better results.

MRO Sourcing Best Practices Summary

  • Automate your sourcing process wherever possible
  • Use target pricing with suppliers
  • Practice clear communication with coverage expectations 


Take the Next Step

Arkestro is offering a free template for your next MRO RFP. Simply visit this link to experience the advantages of Arkestro, the AI-powered, predictive sourcing software. Our team will be happy to set you up with an MRO RFP template at no cost, so you can see the three best practices of MRO sourcing in action.

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Rob DeSantis

Founder

As a former co-founder of Ariba running sales, Rob has deep expertise in the procurement space, having helped propel Ariba from zero to $250 million in revenue in four years and IPO of the year in 1999 before its acquisition by SAP a decade later. In addition to co-founding Ariba, Rob was also an early angel investor and board member of LinkedIn, the world’s largest professional online network.

More recently, Rob served as an investor and advisor to a small portfolio of companies including Bloom Energy, AEye, Inc., HiQ Labs, Agiloft, USEND and more. He is also a co-founder of Dibbs Technology and TrueParity. Rob holds a BSME from the University of Rhode Island.

Marty Meyer

Chief Financial Officer

A trusted partner and advisor on the executive team, Marty has a unique background having been the CFO of nine venture backed technology companies. Marty has raised over $300M in venture funding and has closed six strategic M&A transactions with a combined value of over $1B. Marty has deep domain expertise in ecommerce, consumer internet, networking, data security, data privacy, media technology and enterprise software industries. Marty is especially experienced in the finance and operations activities of SaaS companies and is driven by data and metrics to help create outstanding customer experiences and drive efficient growth.

Neil Lustig

President and Chief Operating Officer

Neil is a seasoned executive with over 30 years of experience leading and building teams in Tech. Neil brings insights from a variety of market spaces and company sizes. Most recently Neil was the CEO of GAN Integrity, an innovative SaaS Compliance technology company serving enterprise customers in North America and Europe. Before that Neil was the CEO of Sailthru, a leader in ML driven personalized multi-channel marketing communications for media and e-commerce markets. Prior to that Neil was the CEO of Vendavo, the leader in B2B price optimization and management for large enterprises. Before Vendavo, Neil led the commercial team at Ariba, the market pioneer that defined and created the eProcurement space. Neil served as the GM of Ariba Europe and subsequently the GM of Ariba North America. Neil started his career at IBM where he spent sixteen years, initially as a software developer, and then twelve years in a variety of Sales and Marketing roles

 

Neil has a BS in Computer Science and Applied Mathematics from SUNY Albany. He is a native New Yorker, Brooklyn born, and still resides with his wife and three children in New York City.

Bonnie Adams

Director of People Operations

Bonnie is a People Operations and HR veteran, with over a decade of experience establishing successful people and culture functions for early to mid-stage tech startups going through high growth phases. She has a passion for supporting and creating inclusive and collaborative work environments and is well-versed in driving positive changes in her organizations as a trusted leader. Prior to joining Arkestro Bonnie worked as the People & Culture Coordinator for Ionic Security, helping them scale from 5 to over 200 employees in addition to a $120M funding round. Most recently she was the Head of People & Culture for blockchain innovator Storj Labs and was the Director of Human Resources at PrizePicks, the largest independently owned Daily Fantasy Sports platform in North America.

Arym Diamond

Chief Revenue Officer

Arym Diamond joined Arkestro in January 2022 bringing over 20 years of experience in the enterprise software and consultancy industry.  He is responsible for the worldwide go-to-market revenue strategy. Prior to Arkestro, Arym was Chief Revenue Officer at CalAmp focused on Telematics and Logistics. He also served as the area vice president of North American Sales within the Salesforce.com Enterprise Business unit for Einstein Analytics & AI, where analytics and machine learning were re-imagined for the front office.  Prior to that, he spent over 10 years at Oracle in various sales positions. Arym holds an MBA from the University of Southern California Marshall School of Business, and an undergraduate degree from California State University.

2022 Gartner® Hype Cycle™
for Procurement and Sourcing
includes Arkestro.

2022 Gartner® Hype Cycle™ for Procurement and Sourcing includes Arkestro.

Gartner® Hype Cycle™ are registered trademarks of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.

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