Big Data holds the key to savings on MRO procurement

To achieve real savings, businesses must change their mindset, shift their attention and have stakeholders work together, explains Jarn Gill, head of corporate sales at RS Components.

Jarn Gill, head of corporate sales at RS Components.
Jarn Gill, head of corporate sales, RS Components.

It’s been interesting to see how Big Data has transformed from simply a buzzword – perhaps viewed as only relevant in high-tech worlds – to a phrase that resonates with a wide range of businesses in varying sectors, and of all sizes.

Companies are increasingly utilising Big Data to help shape their marketing strategies, customer relationship management (CRM) and to gain competitive advantage through personalisation to enhance loyalty and for their own operations – to name but a few examples.

An effective way to utilise Big Data is also in improving business efficiencies – an issue pertinent across many industries.

Being able to gather and aggregate data to extract insights that can aid efficiency is the Holy Grail. But not all organisations have the capability to do this.

At RS Components, we recognised a growing issue of inefficiency caused by the complexity of a process that affects all of our customers: MRO procurement.

MRO products are a necessity for the smooth running of equipment and machinery – or simply business premise essentials such as lighting and heating – that enable a company to operate effectively and produce its goods.

Procurement of products for MRO make up just 20% of a firm’s overall procurement costs, so is often not a prime area of focus for cost savings.

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Procurement of products for MRO make up just 20% of a firm’s overall procurement costs, so is often not a prime area of focus for cost savings.

However, if they were to learn that the ratio of product cost versus procurement cost was actually 2:1, they might sit up and take notice!

This is not a figure plucked from the air but real quantification of a previously difficult-to-measure area.

RS Components has made a significant investment in research, verified by a project team at the Manchester Business School (MBS), to unveil findings about the costs associated with the process that could stand up to scrutiny – hence the independent verification from MBS.

Armed with a vast data capability, we were perfectly placed to embark on such a study.

We knew when making this investment that we weren’t unearthing an area that no one is aware of.

Any procurement professional worth their salt is aware of inefficiencies in the procurement process and the financial impact this has.

However, the true extent of it, we believe, isn’t common knowledge or truly understood.

This is why little or no effort is given to reducing procurement costs – instead being given to driving down product cost, believing that is the answer.

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To make real savings, organisations must change their mindset, shift their attention and have stakeholders work together to achieve savings.

To make real savings, organisations must change their mindset, shift their attention and have stakeholders work together to achieve savings.

Driving down the cost of product must be ditched in favour of streamlining processes, choosing fewer, better quality or energy-saving products to minimise maintenance, reduce energy costs and frequency of replacement.

Streamlining must also be extended to suppliers – dealing with multiple suppliers to save on products costs is counter-productive, as the downtime in dealing with the varying processes of these suppliers when it comes to ordering and invoicing negates any saving that can be made on product.

A real barrier can often be the different agendas and motivation of many departments involved in the MRO process.

Joined-up thinking must be applied if savings are to be achieved and the process must be upheld and constantly reviewed to ensure it is still as efficient as it can be.

RS Components Value Process LinkThe Value Process we developed using our research findings focuses on five key areas of optimisation that will lead to cost savings for customers, and is an end-to-end formalised approach that we fully manage for customers – taking away the perceived hassle that is often the barrier to organisations taking action in the first place.

This study has shown the power of Big Data and what can be achieved when an organisation has a data pool that can provide valuable insights leading to real business benefits.

It has shown that data can remove the complexity by making information transparent, and analytics of it can generate insights that eliminate the guesswork that often guides decision-making, and from which inefficiencies are created.

We strongly believe that unveiling insights will increasingly be the differentiator for suppliers in a variety of sectors.