COVID-19 and the MRO Supply Chain

If nothing else, the coronavirus has highlighted just how many of us are reliant on off-shore suppliers for crucial parts, components and materials, especially China. That is certainly the case for Maintenance, Repair and Operations, or MRO, a long-neglected area in many organizations. At many companies, MRO goes unnoticed until something goes wrong, typically in the form of a stock out which means unplanned equipment downtime, bad data and inaccurate inventories.

The compounding impact can lead to a number of unintended consequences:

• Work order completion delays. Organizations report that nearly 50% of work orders cannot be completed because technicians are waiting on parts.
• Out of control costs due to deferred maintenance. The cost of deferred maintenance could potentially be 30 times that of the early intervention and repair costs.
• Rogue spending. Many procurement organizations report that less than 25% of spend is going to contracted suppliers as a lack of centralized process causes stock outs and forces staff to purchase supplies on p-cards.

Despite the fact that 42% of unplanned downtime can be attributed to poor internal MRO supply chain practices, over 73% of organizations report that they have no MRO-specific strategy or procurement lead.

In a typical scenario, organizations expedite parts and critical spares from suppliers at a premium cost or find alternative options. This time it’s different, because the COVID-19 pandemic is disrupting supply chains on a global level; this is not simply an isolated business process issue. Furthermore, the dependence on overseas manufacturers coupled with logjams at domestic docks, worker shortages and extended shipping times, requires companies to be more deliberate in securing the MRO supplies they need to see them through the crisis.

At SDI, we recently surveyed nearly 350 top tier suppliers of MRO materials. Among the things we found are that over 40% of MRO suppliers report that they source their materials directly from China. And yet, only 60% of those suppliers had identified alternate sources for those materials at the time surveyed. Of those with no alternate sources, 80% had no alternate cost-neutral or better-materials that they could recommend.

Exacerbating the problem, suppliers' pre-corona ability to deliver just-in-time materials and 24-hour shipping had reduced the need for manufacturers to carry large stocks of replacement parts and maintenance materials. The shift to very lean and highly efficient global supply chains is resulting into the unintended consequence of the virus turning what used to be two-day fulfillment times into lead times of two weeks or more, which could be detrimental to business especially in the case of critical spares.

Procurement and supply chain professionals need to think longer-term and include equipment maintenance and repair as they make decisions to guide their companies through the pandemic. This requires a shift in the way firms view MRO – from a simple category of spend to a mission-critical function that must be part of any comprehensive risk management plan. What should organizations and supply chain professionals be thinking about and what are some ways to mitigate the risk?

First, organizations need to identify the risks the virus poses to supply chain continuity, from sourcing and procurement to receiving and handling inventory, to assuring quality and paying for supplies. Owing to its long tail, MRO spend typically receives less management attention than direct expenditures. But the current situation demands MRO be brought into the light. Spend transparency will allow firms to assess long-term demand so they can extrapolate order times and make arrangements for alternate sources if current suppliers cannot meet their needs.

Second, companies that have gotten by with a “break and fix” maintenance and repair strategy need a more proactive approach. Preventative and predictive maintenance that maximizes equipment uptime and reduces the need for emergency parts replacement will be crucial during the outbreak. Organizations can implement policies that emphasize reusing and refurbishing components rather than discarding and replacing them. Plants should consider retrofitting machines to reduce their reliance on customized critical parts. Machines that use interchangeable, off-the-shelf parts will experience less impact from the depressed business climate and can share limited inventories across facility locations.

Third, consider the country of origin of your MRO supplies. Even if procurement organizations typically purchase spare parts from domestic distributors, those distributors may not now be able to obtain parts from OEMs based in Asia or Europe. To compensate for expected delivery delays, organizations may want to increase minimum order quantities, accelerate reorder trigger points and keep a higher level of safety stock for critical SKUs. Organizations are responding by staffing warehouses and storerooms at all times and locking away high-demand items. Additionally, smart point-of-use vending systems that track usage by department and individual employees have been shown to reduce consumption by as much as 30 percent.

Finally, finding and procuring critical supplies may require organizations to use unorthodox methods. Some companies are considering delegating purchase authority to additional employees, loosening controls and lengthy approval processes. They are searching out sourcing options previously not considered – online marketplaces, machinery repair and refurbishing houses and used equipment dealers.

MRO is no stranger to upheaval. In the last 20 years, the industry has overcome challenges presented by Y2K, 9/11, SARS, man-made disasters and natural phenomena. The current pandemic affects businesses on a global scale and has the potential to last months. Thoughtfulness and planned MRO supply procurement can help ensure your company survives the coronavirus pandemic.

Debra Yorkman, vice president of marketing for SDI. She can be reached at [email protected].

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