Minding the store18 July 2022

The trend of appointing third-party MRO service providers is gathering pace with the promise of cost savings and the reassignment of resources to core activities

There are many arguments to support the appointment of a third party for spares management and procurement, with a growing number of manufacturers beginning to consider this strategy. And while it can sound like a fairly daunting prospect, there is little to fear, at least according to Paul Lynch, chief commercial officer at ERIKS Industrial Services.

“Although each solution we propose is tailored to the specific customer, we try to have a standard core for MRO services based upon eight key criteria that we measure against,” he explains. They include inventory management, cost reduction, data quality and the knowledge/skills of on-site personnel.

“For each criteria, we set a bare minimum baseline and a world-class target based on the best we’ve seen for that particular industry,” says Lynch. “We then define the logical progression stages required to transition from one to the other as part of a gap analysis programme. In each case, we ask the customer to set out their priorities and end goals. It’s a very pragmatic, tailored approach.”

Getting MRO right is vital for business success. According to ERIKS, personnel at manufacturing companies waste an average of 13 minutes searching for every replacement part, while a lack of spare parts causes 15% of downtime and obsolete items tie up at least 10% of store costs. As a further point of note, the company estimates that 50% of all MRO spend on shipping is avoidable.

So, what return on investment do manufacturers stand to gain from asking a third party to remedy these issues?

“Our smallest customers are probably spending £700,000 a year overall on MRO activities, whereas our biggest are spending £15-20 million,” states Lynch. “We measure the return on investment for outsourcing this activity based on profit and loss savings. Typically, our customers should expect to see double-digit percentage savings, depending on the industry. The type of sectors that see the best returns tend to be those with 24/7 production environments, such food, pharmaceutical, paper, chemical and automotive, where there is a need to focus on core competencies, not MRO.”

After the first several years of outsourcing, Lynch suggests that the savings which a customer sees as a result of component price reductions reduce; it is the inventory optimisation and technical/engineered savings that provide the major savings over the long term.

“We always ask customers to engage us on the technical side,” he says. “A soap powder manufacturer will know everything about soap, but not so much about motor efficiencies or drive couplings. We do. We won’t just issue 10 belts every week, we’ll try to understand why that particular engineer is requesting 10 belts every week. I know, supplying spares is how we make our money, right? Yes, but we prefer to take the long-term view. If our customer uses fewer products it will stand us in good stead when it comes to contract renewal, so it’s about doing the right thing.”

Another issue is saving time. Here, Lynch puts forward a mantra: let an engineer be an engineer, not someone who is constantly looking for parts.

“We often find poorly arranged stores, so we try to organise them in such a way that someone who has never visited the stores before can find a part within two minutes,” says Lynch. “For us, MRO is not a software solution, it’s about human beings."

Despite its clear benefits, relatively few manufacturers have even considered outsourcing their MRO, even though they may subcontract other non-core activities.

“Unless MRO has been highlighted as a ‘burning platform’, perhaps with soaring inventory value, many manufacturers do not pay it any attention and just view it as a necessary evil,” he says. “We are seeing growth in uptake. We’re now on site [permanently manned] at 150 factories across the UK and Ireland.”

The company claims it can take just 10-12 weeks from contract signing to going live with an ERIKS-managed MRO solution, including some degree of stores layout and management development.

“It really doesn’t need to be difficult,” states Lynch. “In fact, it can be really simple if we have straightforward, pragmatic conversations with our customers as part of a genuine partnership. Don’t forget, MRO is our core business. We know how to store parts, manage data, provide training and interact with the customer’s engineering team.”

With the current climate of sharply rising prices for raw materials and energy, the cost-saving opportunities that come with outsourced MRO management offer the potential to offset some of these burdens. Food for thought.


Rather than outsourcing, some manufacturers simply want in-house assistance with their MRO. David Thompson, proprietor of Ramsoft (UK), is a spare parts specialist who offers training and consulting on this topic.

“Many manufacturers just want an assessment of their CMMS (computerised maintenance management system) inventory master data, or perhaps they are implementing their first CMMS or upgrading to a newer one and have some issues to overcome, such as too many duplicates,” he says. “We can help any company that wants to reduce costs and improve inventory management – and wants to do it themselves.”

Thompson has set out a six-step inventory improvement process: audit, process definition, data cleansing, rationalisation/standardisation, stock level optimisation and measure effectiveness.

The audit stage can cover master data, as well as documentation and best practices, such as assigning a service level to each spare part.

“After auditing, the next step is updating or developing procedures and guides for inventory management,” explains Thompson. “Some companies think their procedures are good, but the technical content is often poor.”

The third step is cleansing the master data, a process that includes the identification and removal of duplicates. Next comes rationalisation, where it becomes possible to seek reduction opportunities through standardisation. This work involves identifying both original and alternative part manufacturers, obsolete part management and the assignment of cost classes.

The optimisation stage entails assigning part criticality and service levels, optimising stock and selecting the right replenishment strategy.

Says Thompson: “I’ve delivered around 80 training courses on optimising spare parts, including cataloguing. Many engineers and warehouse staff haven’t a clue about how to catalogue. They simply don’t know how to deal with manufacturers who operate a dual part number system, or with superseded part numbers.”

The final step is measuring the performance of the new strategy. According to Thompson, the potential gains are substantial. “Not so long ago I reviewed the top 10 spare parts for a chemical company in China, where I was able to recommend around $500,000 of savings.”

Steed Webzell

Related Companies
Eriks UK
Ramsoft Ltd

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