New Technologies Promise to Unlock Lasting Value in MRO Procurement

(Source: Bruce Mars on Unsplash)

Brought to you by WBR Insights.

Most organizations prioritize their procurement spending on the direct procurement function, especially when it comes to sourcing high-cost items that are necessary for the business to produce its products or provide its services. As such, business leaders sometimes view maintenance, repair, and operations (MRO) procurement as a cost center—a necessary investment to keeping the business running, but not an investment causally related to revenue generation.

MRO procurement also tends to be a challenge to manage. MRO managers must often navigate a wide network of suppliers to obtain the products the organization needs day-to-day, from cleaning supplies to refills for office water coolers.

But new technologies are offering solutions. Procurement leaders have spent significant time and money pursuing the digital transformation of the direct procurement function. When applied to MRO procurement—or indirect procurement—digital technology has the potential to cut costs, improve contract compliance, and free up business capital.

Here are just a few of the technologies procurement leaders are eyeballing in 2021.

Advanced E-Procurement and Business Spend Management (BSM) Platforms

One of the most significant trends in the B2B sector was the realization that businesses could adopt the best aspects of consumer purchasing and integrate them into the B2B buying experience. This has led to a significant amount of innovation, including the development of B2B ecommerce platforms that provide users with an "Amazon-like" experience when purchasing products for the organizations.

E-procurement platforms have followed suit, integrating features like the following:

• Intuitive user interfaces
• Guided buying features
• Search capabilities
• AP Automation
• Smart forms
• Streamlined payments
• Contract management solutions
• Analytics and reporting

But the next generation of BSM and e-procurement platforms promises to take spend management a step further, incorporating aspects like community-building and social solutions, more powerful integrations with third-party applications, and insights-driven spend management tools. Several leading BSM and e-procurement software vendors are planning updates this year, and these changes could dramatically change the way organizations manage their indirect spend.

Enhanced Inventory Analytics and Forecasting

MRO inventories tend to be overstocked. This is due in part to inaccurate forecasting of demand for certain types of products. Left to humans alone, it's difficult to anticipate when some products will be needed more than others, so the organization orders too many.

This type of wasted spend is difficult to manage, but enhanced inventory analytics holds some promise to reduce redundancies in organizations' inventories using simulations.

According to McKinsey & Company, "Advanced analytics can look at actual usage data and run iterative simulations to generate more accurate forecasts," thereby preventing procurement teams from ordering too much—or too little—of a necessary product. "The solution compares current inventory levels against demand and service-level requirements, and an analytics engine identifies optimal stock levels and locations."

The firm predicts that this type of solution could reduce inventory stock by up to 40% and cut attendant holding costs by 10%. According to one example, a materials company that deployed such a solution also raised its working capital levels by up to 30%.

Optical Character Recognition (OCR)

Optical Character Recognition is a relatively new technology that creates digital versions of printed, typed, and handwritten documents. There are thousands of uses for this type of technology. But in MRO procurement, it could be the key to streamlining integral processes that are still paper-based.

For example, an organization that must procure several products for internal use may need to source from several different suppliers, each with unique processes and formats for contracts. If several suppliers still rely on paper invoices, it is almost impossible to manage the entire MRO supplier base digitally without some type of manual process involved. All the information on the paper documents must be read by a human and entered into the procurement management system.

Scanning and photographing such documents don't always work, as not all procurement software can process and understand image formats. But with OCR, the system can scan the paper documents, recognize the information, and enter it into the system automatically. This allows the organization to manage all their MRO suppliers through the same system without having to resort to manual data entry.

This could significantly reduce the amount of time MRO procurement managers spend on contract management. Instead, they could shift their time from contract management to other, more strategic activities.

The Next ProcureCon MRO Virtual Event

With the integration of new digital solutions and processes, organizations have an opportunity to solve some of the most significant challenges in MRO procurement.

E-procurement systems are becoming smarter and more comprehensive, enabling organizations to conduct spend analyses, manage contracts, process invoices, and more from a single location. With new analytics solutions, MRO procurement teams can mitigate risk in their procurement processes and reduce redundancies and wasted spending in their inventory. And thanks to OCR, paper-based processes may become a thing of the past, even if the paper doesn't disappear completely.

Digital transformation in MRO procurement is set to be a hot topic at the next ProcureCon MRO Virtual Event, happening online on May 4, 2021. Sign up for free today to reserve your spot at this can't-miss event for procurement professionals.