December 30, 2020

MRO in 2021: Digital Supply Chain Models on the Rise

MRO in 2021: Digital Supply Chain Models on the Rise

No other category of industrial supplies succinctly depicts the difference between cost and value in manufacturing as MRO does. While MRO accounts for only 20% of the total procurement spending of manufacturing enterprises, the value of the finished goods that it supplies is 5 to 6 times greater than the unit costs. If 2020 saw manufacturing enterprises being hit by disruptions in the MRO supply chain, 2021 will see manufacturing enterprises take a radically different approach to MRO procurement with a focus on cost-efficiency, agility, and risk mitigation. E-procurement solutions for MRO will transform from being good to have to a need to have

Manufacturing enterprises will start in 2021 with a sharp focus on exploring ways to be more cost-efficient. Stressed balance sheets coupled with losses of supplier downtime and man-hours on the factory floor from 2020 will require procurement leaders to broaden the lens of cost-efficiency to include both operational and capital expenditures.

Also Read: Spending up to 15% More on MRO? Fragmented Supply Chain is the Reason

Reduction in operational expenditure on indirect procurement like MRO will require procurement leaders to get more visibility into MRO spending, product category spending, consumption-reconciliation rates, and ordering and carrying costs.  The demand for higher transparency into indirect procurement spending and OPEX reduction will manifest a shift towards e-procurement solutions. E-procurement solutions that will enable manufacturers to aggressively control their indirect procurement outlay in 2021 will include e-requisition, e-catalogs, supplier volumes-value spread, and inventory management.

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Manufacturing enterprises that work with a large spread of suppliers for MRO procurement will have opportunities to generate 2-3% cost savings by analyzing big data with artificial intelligence and machine learning capabilities to resolve the challenges of 3Vs: volumes, velocity, and variety of procurement data, and consolidate their supplier bases.

Furthermore, MRO procurement costs are likely to inflate at the rate of 0.2% per annum till 2023 even as policymakers and health regulators will continue to monitor the effectiveness of the COVID19 vaccines. Given the supply chain disruptions in 2020, manufacturing enterprises are likely to move towards annual rate contracts to seek effective insulation from the projected inflationary pressures on MRO.

Asset-light balance sheets will be in vogue in 2021. Manufacturing enterprises will look to de-leverage their fixed and operating cost structures through CAPEX and inventory optimization. In 2021, manufacturing enterprises will have the opportunity to achieve this goal by building new-gen procurement practices and digital supply chain models. Cloud-based solutions in MRO procurement will become the norm in 2021 and organizations will focus on digitizing their workflows to increase transparency and visibility of data.

Cloud-based delivery models in MRO procurement will become the norm in 2021 because these can host the software application, procurement data, and AI & ML algorithms on a centralized repository. Most importantly, cloud-based delivery models for MRO e-procurement require zero CAPEX on additional digital infrastructure.

Partha Dash is Senior Vice President, Enterprise Business at Moglix.

To learn more about manufacturing and supply chain trends in 2021, download our ebook titled Road to Self-Reliant Manufacturing: Procurement and Supply Chain Insights for 2021 here.