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Tip: Help Customers Reduce MRO Costs

October 12, 2011

Distributors can serve as consultants to help customers evaluate how they procure MRO, according to Joel Roth, author of The 20% Solution: A Practical Guide to Dramatic Cost Reduction in MROP Procurement. He says there are hundreds of opportunities every day to identify and implement cost savings in this area. (Read: Competitive Advantage in MRO.)

Why is there opportunity in MRO? The characteristics of MRO buying are different from other types of goods, according to Roth, and different methods of analysis, sourcing, negotiating, stocking and tracking are required, along with a different cost structure. He says that while MRO supplies account for just 15 percent to 25 percent of total material spend, they represent 75 percent to 85 percent of line items bought; procurement efforts; purchase orders issued; invoices processed; data entry; and so on.

Roth says: "It is the rare purchaser who has a good comprehension of the true potential improvements obtainable in the MRO arena. Moreover, even that rare individual who has evaluated his MRO expenditures has generally concentrated on invoice prices, which are less than 40 percent of savings opportunities."

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