What is MRO? It is a type of indirect cost.
I would watch this first beginning at the 12:15 mark…
Please click below for a copy of our Indirect Procurement Research report with Microsoft. It was subsequently published in Supply Chain Management Review (which is like the Harvard Business Review of SCM)…
A couple of people have asked this question. Maintenance, repair, and operating items refers to all those things that companies need to keep their factories making products, but they are not direct costs – they are a type of indirect cost/spend (the stuff that goes into the products they build like engines and tires). MRO would be stuff like oil, lubricants for the tools and equipment, work gloves and hammers for the workers, cutter sharpeners for the tools, etc. MRO is just one kind of indirect spend, but it tends to be the largest component of indirect spend (all spend other than direct costs) for manufacturing companies. Most companies do not take their MRO spend too seriously. They take how much they spend on tires from their tire suppliers very seriously, but for some reason they are less focused on MRO. There is a huge opportunity for most firms on cost savings and widening margins by spending less on MRO because there is ample opportunity to do so there, and they should manage it just like they do for their direct material purchases. MRO is a form of indirect spend that could be in the billions of dollars for some Fortune 500 companies and there is a lot of lowing hanging fruit there.Do not be afraid of Indirect, MRO, and the Service Sector (i.e., healthcare).
As discussed, reducing direct material costs for manufacturing companies will continue to be a huge priority because DM costs account for over half of every one dollars worth of sales revenue. Indirect and MRO spend is getting increased attention as the next frontier of SCM for doing things better, faster, and cheaper. Keep in mind that all the spend for non-manufacturing companies is called indirect spend (because they have no direct material costs because they do not build anything). Every company in the service sector spends money, has suppliers, has operations, has logistics, and wants to do everything better, faster, and cheaper. No industry needs more help with SCM than healthcare. They spends lots of money and subcontract everything. Healthcare has SCM managers but traditionally they did not have a SCM background or education. So, we wonder why healthcare costs have gone through the roof? SCM is part of the reason. Now, I actually have students getting jobs in healthcare. There is a lot of low hanging fruit to be had in this industry and that could make you look like a superstar. Just keep in mind that manufacturing companies tend to pay a premium for SCM students and healthcare might not (they pay a premium for their core competencies like surgeons and nurses). I have a student at Bronson Hospital and this other student just reached out to me at the UM Hospital…
Hello Professor Sime,
My name is xxxxx and I am a graduate from Western Michigan’s Integrated Supply Management undergrad program. I graduated December 2011 and I have been working in the University of Michigan’s Hospital Operating Room Supply Chain Department for the past 2 and a half years. I just wanted to take the time to thank you for your insight into supply chain along with introducing me to the idea of having a career in supply chain within the healthcare sector. As you stated in your class supply chain in health care is a growing industry with increasing demand for college graduates. I always assumed I would be working in manufacturing but to find a gratifying supply chain career within healthcare has been equally rewarding. So once again I would like to thank you for presenting several career paths and not the prototypical career choices for supply chain majors.
Most of you will begin your careers on the procurement/purchasing/sourcing side of SCM. Would you prefer to be on the direct or indirect side. Please provide some justification that shows me you understand the issues to consider.
Read & Watch: Lots of low hanging fruit in Indirect Purchasing (could help you look like a rock star):
Article pasted below…
Curkovic and alumni create new global industry standard
When global consulting firm COPC Inc. planned the development of standards for indirect procurement, industry executives responsible for organizations were asked to participate on the project. Many of those executives were Business Broncos. And, when COPC identified the need for academic leadership for the project, it tapped resources from the Center for Integrated Supply Management and Dr. Sime Curkovic, Valluzo Faculty Fellow and professor of supply chain.
“Companies are only now starting to look at their indirect procurement from a strategic perspective. The COPC Indirect Procurement Standard not only meets academic rigor but satisfies real-life business needs for today’s procurement professionals,” says Curkovic.
COPC announced the publication of the Indirect Procurement Standard, a set of best practices and key metrics for any company seeking to manage its indirect spending strategically. The standard is a comprehensive system for managing procurement operations and covers five areas—leadership and planning; business processes; support processes; people processes; and performance. The goal is to help companies create efficient and high-performing procurement operations that provide indirect goods and services at an optimal value—balancing cost, quality and risk.
Indirect procurement, also called indirect spend, refers to the purchase of goods and services used internally at a company for effective operations. Examples of indirect procurement purchases include computer hardware and software, travel management, services from recruiting or training agencies, facilities management, utilities, and fleet management.
A variety of companies stepped in to help with the project, including Cisco, Hewlett Packard Enterprise, Intuit, Magna International, Perrigo, and Stryker. And, among the group of executives, a team of Business Broncos that included Christopher Flum, B.B.A.’86, founding member of the ISM executive council and director of purchasing, North America, Magna Exteriors.
“The standard was an essential step in ensuring companies can implement appropriate best practices and benefit from the latest knowledge in this evolving area,” says Flum.
Other influential WMU alumni participating in the project included Dave Drouillard, B.B.A.’84, of General Motors; Brad Roberts, B.B.A.’11, of Mann Hummel; Ryan Horn, B.B.A.’02, of Xylem; Justin Hallenbeck, B.B.A.’01, of EcoLab; and Jeff McInerney, B.S.’92, of Rolls Royce.
“The WMU ISM program is more than 20 years old, and we have several alumni who have become decision makers and change agents in their organizations,” says Curkovic, commenting on the large number of alumni involved with the project. “It speaks volumes that our faculty and alumni have such a major imprint on this indirect procurement standard. This network is a loyal, trend-setting and accomplished group that is committed to moving the supply chain field forward.”
The WMU ISM curriculum was an academic leader in developing indirect procurement curriculum in response to industry needs. “Several years ago, I addressed the faculty at WMU regarding the lack of indirect procurement training in curricula,” says Flum. “The indirect space was developing into a strategic discipline that required a formal education where very little was offered. The ISM program responded by building indirect content that puts it at the forefront of the specialty.”
Since that time, the discipline has grown so much that industry was starting to demand a framework to guide their indirect processes.
For some reason, this is my most cited research paper:
Please contact me for more material. Thank you. Sime
“WMU Integrated Supply Management (ISM)…Nation’s best undergraduate SCM program (Gartner); 2nd in SCM technology (SoftwareAdvice); 2nd in top global SCM talent (SCM World)”