Midsize business

What is MRO inventory and how should your business use it?

MRO inventory stands for maintenance, repair, and operation inventory. This classification includes all the supplies a business needs for its production process that do not become part of an end product.

MRO inventory is often overlooked because it doesn’t generate revenue—at least not directly. But as you’ll see in this article, mismanaging MRO inventory can disrupt your supply chain and be detrimental to your bottom line.

Let’s take a deeper dive into MRO inventory and how you can optimize it to gain a competitive advantage.

What is MRO inventory?

MRO supplies are a type of inventory that refers to any equipment, materials, and supplies used in the production process that isn’t part of finished goods inventory. MRO materials include consumables like upkeep supplies, technology, and safety equipment (we’ll explore these categories in depth later).

MRO inventory might not be related to the core function of your business, but neglecting them leads to downtime, upset customers, and inefficient operations.

Think of it this way: personally, you don’t make money from the gas in your car or the WiFi you use to send emails—but without them, you wouldn’t get much done. Accordingly, you track them and maximize the value of their costs.

Five types of MRO supplies

Some companies consider MRO a catch-call for the miscellaneous costs of running their operation. Here are some examples:

Personal protective equipment (PPE): gloves, masks, safety glasses, hard hats, and earplugs

Cleaning supplies: disinfectant, mops, brooms, brushes, and buckets

Office supplies: notebooks, pens, papers, batteries, staplers, and folders

Industrial equipment: valves, compressors, lubricants, motors, gears, and spare parts

Technology and hardware: computers, printers, scanners, and paper shredders

How MRO inventory impacts your supply chain management

The average MRO spend typically ranges from 5-10% of the cost of goods sold (COGS). This may not seem like much, which is why they often become an afterthought. But those costs quickly add up over time. Left unchecked, operations personnel are left to restock MRO inventory haphazardly, leading to rogue spending habits and missed opportunities.

For example, if your team unexpectedly has a PPE stockout, you’d have to halt your production line immediately. While your team waits for a restock, you fall behind your deadlines and lose revenue. Fortunately, you can mitigate risks like these with MRO inventory analysis.

How to manage MRO inventory

Inventory analysis is often reserved for “traditional” types of inventory, such as raw materials, work in progress, or safety stock. These analyses involve cutting-edge demand forecasting and cost analysis.

MRO procurement might not be the star of the show, but proactively managing it will help you maximize productivity and improve your cash flow. Here are three approaches to consider:

In-house management

You can control the flow of your MRO supplies using an ABC analysis, the Just-In-Time method, or other inventory management techniques. Using your internal staff to manage MRO inventory gives you more control and tends to cost less, but manually monitoring stock levels can be time-consuming.

Hybrid approach

In this approach, some aspects of your MRO inventory are handled in-house, while others are outsourced to a third party.

For example, suppose there’s a compressor you need for your manufacturing process. In that case, the vendor could monitor its inventory levels in your storeroom and place a purchase order when you run low. This is known as “vendor-managed inventory” or VMI. Investing in this approach frees up your team to focus on their strengths.

Now that we’ve covered the tactical components of MRO inventory control let’s move onto strategy.

Best practices for MRO inventory management

MRO inventory might not stand out on a balance sheet, but those small costs add up over time, especially if you don’t keep a close eye on them. Here are four tips to take control of your MRO inventory.

1. Prioritize essential items

Some MRO items are more important than others. Prioritizing critical items helps you determine what you should always have on hand. This is where ABC analysis comes in, which groups items into categories based on their level of value within your business. Using these insights, you can create a regulated replenishment cycle.

2. Stay lean

As your business grows, it also becomes more complex. This can lead to an abundance of redundant MRO inventory that takes up space and resources. Before you optimize anything, do an audit of your equipment and eliminate anything you don’t use.

3. Know your peak and low seasons

With a combination of demand forecasting and historical data, you can predict the busiest times of year for your business. Taking these metrics, you can dial your MRO purchase orders up or down to control costs and make the most of your stockroom space.

4. Use KPIs to guide decisions

Without standards, measuring performance can get messy. Setting key performance indicators (KPIs) like lead times and reorder points will get your team aligned on how much MRO inventory you should have at a given time and when it will be replenished. These KPIs will prevent rogue spending and risky purchases.

Final thoughts

Some businesses don’t notice the cost of neglecting MRO inventory until it’s too late. The key to avoiding being buried in overhead costs is proactive management—and that starts with the right inventory management software.

QuickBooks Enterprise tracks all your products, orders, and transactions into one platform. Using real-time analytics, you can edit orders based on your team’s needs and take advantage of bulk order discounts. With this suite of tools and proper planning, you can optimize an overlooked facet of your business that can pay dividends for your business operations.

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