Maintenance, Repair, and Operations (MRO) supplies are crucial for many companies that want to ensure their equipment operates effectively, facilities function, and employees remain productive.

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While many firms pay close attention to the price to retain MRO supplies, they often overlook the hidden costs associated with inefficient procurement practices. These costs can, among other things, drain funds and decrease productivity. To avoid such expenses and prevent problems, it’s essential to use MRO supply agreements that optimize MRO purchases, save money, and reduce risks.

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Here are five hidden costs businesses can avoid with efficient MRO supply agreements, with help from dxpe.com.

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Hidden Cost #1: Emergency Purchasing Expenses

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One common hidden expense in MRO procurement occurs when critical parts or supplies are unavailable when needed.

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Equipment failure is always unexpected, and if the required parts are unavailable in the warehouse, the company is obliged to quickly purchase what’s needed. The problem is that emergency purchases are often quite costly because they’re accompanied by higher shipping and processing costs and fewer supplier options.

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In some cases, businesses even have to purchase items from unfamiliar suppliers at high prices to restore operations as soon as possible. That’s often a better option — at least at the moment — than dealing with unplanned downtime due to equipment failure and the wait for parts. But while buying from an unfamiliar supplier might seem like a good idea, it can be problematic because businesses may not have sufficient time to conduct due diligence before striking a deal.

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A good MRO supply agreement can help eliminate the risk of not having the required parts by ensuring that commonly used items are always available in the warehouse.

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Hidden Cost #2: Excessive Equipment Downtime

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Another expense faced by many firms is equipment downtime, as mentioned above.

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Equipment failure stops the work process. If the machinery doesn’t work, then employees can’t perform their tasks, and customers’ orders will be delayed. Even if the problem appears to be a relatively minor maintenance issue, it often arises because of procurement problems.

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Delays in getting replacement components, unreliable suppliers, and poor inventory planning complicate and delay necessary equipment repairs.

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A well-developed MRO supply agreement, meanwhile, can help stabilize supply chains and define delivery times. Moreover, most agreements establish service-level requirements to ensure on-time delivery of orders.

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Hidden Cost #3: Administrative and Procurement Inefficiencies

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Purchasing MRO supplies from various suppliers without an agreement creates additional administrative costs — not to mention significant risks if things don’t go as planned.

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Procurement teams should, before signing any MRO pact, consider things like the following:

• Price comparison
• Invoices tracking
• Delivery monitoring
• Resolving issues with suppliers

MRO supply agreements reduce costs by standardizing prices and simplifying ordering procedures. Besides, supplier consolidation may reduce the number of suppliers the company has to work with, making things easier.

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Hidden Cost #4: Inventory Management Problems

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Poor inventory management can lead to hidden expenses that become apparent only when they start to affect operations. Some companies have too much inventory because they worry about future shortages. It may seem like a good strategy, but the problem is that taking this route often ties up working capital and increases storage costs.

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Other businesses suffer from insufficient inventory, which causes shortages that interrupt maintenance work and create operational problems.

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An MRO supply agreement can help companies solve the problem by establishing the right balance between excesses and shortages. Today, many suppliers offer inventory management services, forecasting assistance, and even vendor-managed inventory programs that make inventory management easier.

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Hidden Cost #5: Unpredictable Pricing and Budget Overruns

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One of the biggest frustrations operations managers face is the unpredictability of the prices of purchased items.

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Without MRO agreements in place, MRO supply prices can fluctuate due to market conditions or changes in transport costs. Unpredictability makes it difficult to develop a budget. Meanwhile, price volatility can also provoke reactive buying decisions that boost costs.

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Well-thought-out MRO supply agreements often include negotiated pricing structures, volume discounts, and other terms that help stabilize prices over the long term.

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Stability of prices allows businesses to do the following:

• Accurately estimate its budgets
• Improve forecasting
• Avoid procurement surprises
• Plan financial matters properly

For organizations focused on controlling costs and maintaining profitability, pricing stability can provide substantial value.

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How to Turn Procurement into Competitive Advantage

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Businesses are seeking opportunities to improve performance and save money. They often focus heavily on making big investments in equipment or technologies, but sometimes relatively small changes yield good results in the long run.

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An effective MRO supply agreement is an example of such a change that can help to avoid hidden costs, minimize emergency purchases, reduce downtime, make the procurement process more efficient, optimize inventories, and stabilize prices.