Businesses are starting to recognise that there are real inefficiencies in their MRO procurement process, with many realising that they must act now to prevent costs mounting and profits pouring out of the door.
At RS, our data capability demonstrates to customers just how much their MRO procurement is costing them. Although we find that these inefficiencies have not gone unnoticed within many organisations, the magnitude of them has not always been understood. Companies need (and want) to understand more about how they manage and procure MRO parts. This is often the starting point to taking action and can lead to a light bulb moment around the potential savings that can be achieved.
A great example of this in practice involves Berendsen, the UK’s largest commercial laundry services provider, which RS worked with to unlock value in the MRO procurement process. With 60 sites across the UK, efficiencies in all processes are crucial to the company's bottom line.
"Companies are beginning to wake up to the fact that they must act now to prevent costs mounting and profits pouring out of the door"Brendan Free, Industry Sector Manager, RS
The process started, aptly, with the procurement director, who had already embarked on a journey to reduce the process cost caused by the high number of suppliers, and therefore a high number of invoices being raised. We started collaborating with Berendsen at the perfect time to help it to shape and develop its strategy, and the company was keen to work with a competent partner that could help in this process while minimising any impact on downtime in the business as a result of the changes.
Using consumption data
As Berendsen had no way of seeing or analysing the MRO parts bought and used across multiple sites because its had no central system, it meant that the consumption data held by RS was invaluable in sharing insight and driving cost savings.
An interesting initial finding was that it stocked many items that were hardly used at all. This is a common scenario across multi-site organisations where stock inventory is overcrowded with non-critical or infrequently used items – risking obsolescence and stunting cash flow. In addition, they often bought more of an item they already had in stock due to lack of visibility of the full inventory.
We found £13,636 worth of excess stock across its sites – a vast inefficiency in itself without even looking at the wasted time in procurement. We set to work on helping the company to develop an effective inventory listing and management system.
Then, focusing on the products themselves, we found a lot could be saved by product substitution – both on sourcing a more cost-effective product and on future ordering with less invoices to process. This saved an impressive 5% per year on product cost. Berendsen now uses our eProcurement platform for enhanced efficiency – saving 8.3% in cost of procurement hours across just two sites. It’s easy to see how these savings can add up.
"It is crucial to have engagement at many levels throughout a business to drive real change"Brendan Free, Industry Sector Manager, RS
While our initial conversations were with the procurement director, which was an ideal scenario, it’s worth noting that it is crucial to have engagement throughout a business to drive real change. People from top to bottom and across departments including finance, operations/engineering, in addition to procurement, must be onboard. Only when stakeholders from all parts of the business work together to optimise efficiencies can the full savings potential be achieved.
We are currently in the process of delivering the contract, supporting Berendsen in a number of cost-saving activities as a result of the inefficiencies identified. The organisation is a shining example of how a combination of the right data, the right analysis and execution of activities with the full support of multiple stakeholders can reap immediate benefits that will continue to benefit the business in the future.