Adding value to MRO and strategic sourcing initiatives
The current tumultuous economic situation and ever-intensifying competition in the global market have a significant impact on organizations around the world. As such, it is imperative that companies enhance business and operational efficiencies, reduce spending, and increase profitability. Optimizing the maintenance, repair, and operating (MRO) supply chain is one meaningful way to drive bottom-line savings.
MRO tools are at the heart of the indirect supply chain and play an important role in the production life cycle. The MRO supply chain thus presents a valuable opportunity for cost reduction, cost avoidance, and improved productivity. Many businesses in the past have focused such efforts on direct materials and capital spending instead of MRO supplies, which traditionally are viewed as having little potential for savings. But manufacturers are starting to take a closer look at their MRO supply chains—with favorable results.
Of course, this intensified focus on optimizing MRO brings to light the numerous challenges involved. With manufacturing facilities spread across multiple locations, operations and supply chain management professionals find it difficult to control their MRO spend without a standard framework in place. Lack of inventory visibility hinders asset use and prevents efficient application of resources. It also creates excessive costs and expenses for equipment repair and replacement, leads to low productivity, and gives rise to bloated inventories. Plus, there is a high risk of supply chain disruption arising from the inability to replace parts, which can lead to lost opportunities for revenue generation.
The supplier side of the story also is quite similar. For organizations that have a global reach, it is extremely difficult to standardize sourcing strategies, as every location differs in the nature and size of the supplier base as well as production needs. Lack of visibility into the supplier base gives rise to maverick spending and inefficient sourcing and procurement strategies, negatively affecting the bottom line. For example, without accurate supplier master data in place, parts might be procured from blacklisted suppliers, thus increasing the risk for equipment failures.
Another challenge is the existence of multiple enterprise resources planning (ERP) and other legacy systems and applications that manage the MRO master data across the organization. These systems differ from location to location and through cross-functional departments in terms of data conventions and standards, as well as how the data are created and maintained on an ongoing basis.
This leads to a lack of communication and collaboration that masks visibility into the MRO inventory and reduces the effectiveness of sourcing and procurement strategies.
Master data challenges
The list of obstacles is always growing. But all these challenges, when traced back to their points of origin, reveal a single root cause—bad master data. The issues with master data arise from the structure of the organization itself. Businesses today are built around a number of mergers and acquisitions and use diverse ERP and legacy systems. Production and manufacturing plants sprawl across various geographies and locations across the globe, and each plant contains many machines with large numbers of moving parts. Many people over many years service or repair the machines and purchase replacement parts for them. A large quantity and variety of consumable MRO items get used every day in operations procured from numerous suppliers. Materials are dispersed across several warehouses, with every division following different sourcing and, in many cases, inefficient strategies.
Clearly, enormous amounts of inaccurate master data pile up. The bulk of material, supplier, customer, and product master data is inaccurate, inconsistent, unclassified (or misclassified), and outdated. This leads to degradation in data reliability—and these data are essential for any organization that wants to optimize its MRO and strategic sourcing initiatives. Several negative business outcomes stem from failure to control and manage MRO item and supplier master data, which include
- bloated inventory and high obsolescence
- invisible and undocumented inventory
- high inventory carrying costs
- increased plant downtime and reduced productivity
- fractured sourcing and procurement processes and weak compliance
- inability to manage spend and reduce total MRO consumption.
With such MRO scenarios playing out every day all over the world, there is a pertinent need for master data management to cleanse historical master data, optimize the indirect supply chain and sourcing initiatives, and streamline data governance across the organization.
Master data management
Master data is one of the most crucial elements in the MRO supply chain, and it needs to be managed effectively. Master data management is a comprehensive strategy to determine and build a single, accurate, and authoritative source of a company’s information assets and deliver this on demand as a service. An effective initiative comprises two key parts—historical data cleansing and ongoing data management.
Historical data cleansing incorporates the following four elements:
- Classification comprises creating a structure for the master data based on globally accepted coding standards—such as UNSPSC, eCl@ss, and the like—or any other standard or proprietary systems. Unstructured MRO material and supplier attribute information is parsed from text fields into attribute fields. This helps users distinguish and categorize all the parts in the master data.
- Normalization and enrichment ensure that the master data are accurate and that the relevant material and supplier attributes—both critical and noncritical—are standardized and incorporated, thereby facilitating the location of the particular data in the master data.
- In the last step, de-duplication, users identify and remove any repeats within the MRO material data, which strips the master data of any inherent redundancies.
These four steps can help operations and supply chain managers harmonize existing legacy MRO data across all
systems, applications, and organizational units of an enterprise and gain better visibility into the material and supplier bases leading to efficient MRO asset management and supply base rationalization. But historical data cleansing is only half the battle; the bigger challenge is to maintain accurate MRO master data on an ongoing basis.
Ongoing data management involves sustaining quality data and creating a framework for the creation, use, access, and maintenance of data across the organization, leading to enhanced operational efficiencies and improved sourcing strategies. It is very important to the success of the project to implement an effective and efficient ongoing data management tool.
There are many challenges involved in managing master data on a continuous basis, which is unique to the MRO supply chain. The enormous scale of activities, their geographical reach, and enterprise-wide diversity among the different business and production units in the supply chain are some of the major obstacles. While legacy data harmonization guarantees that a benchmark is created for the data quality, it is important that the entire plan be replicated for the ongoing data management process.
Ongoing data management implements a framework for the continuing creation, modification, and maintenance of data. Any new data entry across any division or unit of the enterprise will be classified and enriched as per the standards defined for the legacy data. As the first step, rules have to be specified to identify and collect the data. In the second step, the taxonomy and basic framework for data storage are crafted and put in place. And finally, a data governance model has to be defined and implemented. This involves monitoring and managing the master data life cycle right from the point of data creation all the way to its complete decommission or termination. The value to MRO and sourcing strategies
Master data management depends on both historical data cleansing and ongoing data management to reap maximum benefits from—and add significant business value benefits to—the MRO supply chain and strategic sourcing initiatives. A successful master data management initiative delivers many business value benefits to the MRO supply chain of an organization, which include
- MRO supply chain optimization
- efficient sourcing strategies and significant spend reduction
- greater process and contract compliance
- enterprise visibility enhancement and efficient enterprise risk mitigation
- inventory optimization and effective materials handling
- streamlined operations, increased productivity, and greater profitability.
By perfecting master data management, operations and supply chain managers are able to realize immense value and better manage the complex and ever-shifting challenges of our current global economy. The impacts of effective master data management on MRO and strategic sourcing initiatives can drive considerable bottom-line savings and help users achieve significantly enhanced business and operational efficiency.
Arthur Raguette is vice president of Zynapse, where he spearheads the global strategic partner development, industry alliances, and new business initiatives. He may be contacted at firstname.lastname@example.org.