Indirect Procurement for MRO supplies is changing – and quickly

According to a recent survey amongst Chartered Institute of Procurement and Supply (CIPS) members, 44% anticipate “complete change” in company strategy over the next five years. A further 34% envisage “some change”.
 
Several factors are driving this change, from internal pressures to reduce costs to external factors such as Brexit. The survey, which forms the basis of the Indirect Procurement Report 2018: drivers of change and how to respond whitepaper by RS Components and CIPS, generated insight into drivers of change.
 
Global survey of procurement professionals
For the past few years, indirect procurement expert RS Components has forged a knowledge partnership with CIPS, which represents procurement professionals internationally. A central part of this partnership is the annual survey of CIPS members. This research aims to reveal the current challenges within Indirect procurement for the supplies related to Maintenance, Repair and Operations (MRO). The 2018 survey attracted an international response, with 851 interviews completed over a four-week period. Last year’s survey included 109 UK respondents compared to 709 EMEA (240 of which are in the UK), 104 APAC and 33 Americas respondents this year.
 
Participants are from a range of sectors. The largest area is the public sector (22%), followed by process manufacturing (17%), energy, oil & gas, utilities or mining (10%), OEM (9%), transportation & defence (9%), commercial services (9%) and technology (4%).
 
Participants are employed by differently sized businesses, too: 41% work for large companies (1,000 or more employees), while 38% and 21% are in small (1-249 employees) and medium-sized (250-999 employees) companies respectively.
 
The role of participants within procurement and the supply chain is equally varied, with 20% working at an operational level, 50% at managerial level and 30% at director and senior level.
“More businesses are starting to take a category management approach to buying because they realise that the process costs associated with MRO items are a big issue”Mike England, President EMEA, RS Components
Internal business pressures driving change
The survey opens by getting to straight to the heart of the challenges procurement professionals face, asking: “What business pressures do you face that most impact the way your company procures indirect materials such as those in the MRO category?”
 
In response, participants list the biggest pressures as the need to reduce operational budgets (55%) and to reduce inventory costs (52%). Improving asset performance is the third most important issue (42%) and the need for continuous improvement lies in fourth place (38%).
 
These answers demonstrate the extent to which indirect procurement is being squeezed financially, with companies regarding MRO as a way to make cost and efficiency savings. The 2017 survey revealed similar findings.
 
On top of these pressures, procurement professionals face a range of day-to-day challenges in controlling purchasing activity. These include ensuring contract compliance with preferred suppliers (47%), maintaining ageing assets (46%) and managing stakeholders over multiple sites (42%). Closely behind these challenges are delivering annualised cost savings (41%), lack of spend visibility (40%) and lack of investment in technology to control purchasing (35%). 
 
These difficulties are fundamentally changing the way that those responsible for managing the MRO category operate. Mike England, President EMEA, RS Components, has observed a shift, particularly regarding financial concerns. “We’re finding that more of our customers look to us to help them identify where they can take cost out of their indirect supply chain,” he says.
 
“More businesses are starting to take a category management approach to buying because they realise that the process costs associated with MRO items are a big issue.”
 
Companies are reducing the number of suppliers they use for the same reason. As Mike England notes: “While the average order size in MRO is small, the time required to make the purchase significantly adds to its costs. Part of that is because organisations are dealing with too many suppliers without working to a streamlined process.”
“As soon as people go online and select the cheapest option that isn’t from a trusted supplier, they open themselves to a risk that can’t be underestimated.”Helen Alder, Head of Knowledge and Product Development, CIPS
What external factors are driving change?
Outside factors are driving changes in MRO procurement as well. The shift towards using a smaller number of trusted suppliers not only helps with time and cost savings – this trend also reflects the high level of concern about counterfeit products entering the supply chain. Helen Alder, Head of Knowledge and Product Development, CIPS, is clear about the problems and risks linked with fake items, especially in MRO, where maverick spending is a well-known problem.
 
“As soon as people go online and select the cheapest option that isn’t from a trusted supplier, they open themselves to a risk that can’t be underestimated,” says Alder. “A faulty part could cause extensive damage and downtime; in the worst case, it might even injure an employee. It just isn’t worth that risk for the sake of saving a few pounds.”
 
Respondents share Alder’s views, with 32% identifying counterfeit products as a significant problem. This figure rises to 41% among EMEA (excluding UK) participants. Furthermore, this is a particular issue among small and medium-sized businesses (39% and 37% respectively) as well as OEMs (46% of these rate it as a significant problem).
 
An external factor affecting business of all sizes is Brexit. Since the June 2016 referendum, this hot political topic has created uncertainty for organisations in the UK and beyond. When asked about how Brexit would impact their role, 53% of UK respondents are concerned (compared with 38% in 2017). Globally this figure is 41%.
 
Survey participants anticipate several specific changes arising from the UK’s exit from the EU. Among the responses, 67% say that Brexit will affect overall purchasing prices, 64% are concerned about legislation changes around the customs union, 52% believe that there will be delays in decision due to uncertainty, 42% say that they’ll need to find more MRO suppliers and 24% say that it may be more difficult to hire the right people.
 
All of these concerns may substantially impact MRO and, whatever the outcome of negotiations, Brexit will no doubt shape the industry. Major change in the sector looks set to continue.  
 
Read The Indirect Procurement Report 2018: drivers of change and how to respond whitepaper for more information on how you can best prepare for change.