Why no company could ever optimize MRO purchase in India?

*MRO – Maintain Repair Operate

Mr. Khan is head of purchase for a multinational with 3 manufacturing sites operating in different parts of India. Over a freewheeling conversation, he shared that in his two decade old experience he only saw brief dialogue over MRO spend optimization during goal setting annual meetings between purchase teams and top management. After the annual summits no real effort. It was worth scratching heads over this problem as some large organization spends millions of dollars annually yet not deploying resources to optimize this kind of purchase.

Lets look at some facts which can increase insights on what is going on. The annual revenue at one of three India plants at Bawal in Mr. Khan’s organization is $30 million. The total purchase is $21 million while the MRO purchase is $1 million. Interestingly being less than 5% of total purchase there were 3000 SKUs to be dealt with from 1700 suppliers. This data indicates to a fundamental management issue which is causing poor attention to MRO spend. Management work by 80:20 principle when it comes to prioritization. By the nature of low value in overall purchase pie MRO purchase gets lower resources to mange it and thus low attention.

One key issue is too many suppliers to deal with due to unorganized market in India said Mr. Narula purchase leader from leading auto component JV company based out of Faridabad. Once a product flows in supply network after being manufactured in India or imported there are many channels and on retail side there are many small dealers. Most MRO items are not required regularly on predictable frequency. Individual purchase order carries low volumes. This causes purchase resources in organization to do shallow research before finalizing a supplier.

The other issue is there are many non power brands (less known low cost brands) available in the market shared a large distributor of Bosch products at Chawdi Bazaar New Delhi. These small brands are winning on price point and remain extremely regional. There is absence of clear visibility on national level about what is available at what price. E-commerce platforms can come to rescue in such situation. W.W. Grainger is a success story in the US market. There are starups in India like and others who are trying to increase transparency by providing national platform to these brands.

Another issue highlighted by Mr. Jagadeesh from a large auto major based out of Chennai is predictability of delivery with small suppliers acting as retail partner to MRO items. One of the key reason is that these are family run small businesses with poor access to capital to manage reasonable cash flow.

Considering above issues, MRO items purchase can be a place to use E-commerce innovations recently discovered and established by B2C retail players like Flipkar and Amazon. According to WW Grainger fact book 2016, India size of MRO business is $ 16 billion. Supplier consolidation, transparency of pricing and predictable delivery time can add tremendous value to Indian manufacturing and non manufacturing sectors. One of such exciting startup focused on these values is

Watch out this space for more on this subject. Add your comments below to develop the article.

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