The MRO Cost Array Analysis is designed to show the breakdown of costs associated with MRO distributors and the related expected increase in the supply-chain sub-components based upon current market conditions. Updates will occur at least semi-annually, but more frequent as market conditions change based upon market variability, supply-chain disruption, criticality of events and velocity of market conditions. The analysis will be updated once the cost of a barrel of oil drops to <$75.00, but semi-annual cadence of updates will continue thereafter or in the even the cost of oil increases.
Overview
MRO Distribution Expense Detail
0 %
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cost of Goods- 51%
Freight - 10%
Advertising - 3%
SG & A - 24%
Operating Profit - 12%
P & L Expense Cost of Goods SG & A Operating Profit Freight Advertising TOTAL
Factor 51% 24% 12% 10% 3% 100%
- Estimated Supplier Partner 2022 Annual Increase = 13.83%
- Removing the fuel increases the estimated Annual Increase reduces to 9.88%
- Brent crude cost / Barrel (July 13, 2022) - $ 99.60
- Cost reduction marker - (we should request supplier cost reduction when cost per barrel of oil hits ) - $ 75.00
Opportunities
Identify cost elements and drivers for the category to identify Total Cost Levers
Consider:
- Price
- Transportation costs
- Purchasing admin costs
- Inventory costs
- Supplier partner certification costs
- Hourly rates
- Materials mark ups
- Energy costs
- Maintenance costs
- Specifications
- Internal cost of change
Unit Cost Reduction
Buying Power Leverage
Product / Service Specification / Rationalisation
Business Processes / Labour Efficiency
Transactions / Systems
Compliance / Shrinkage
Demand Management
- Compare "total" costs
- Renegotiate prices and "should costs"
- Unbundle pricing
- Consolidate number of suppliers
- Pool volume across units and combine volume across different commodity categories
- Redistribute volume among supplier partners
- Conduct product value analysis and engineering
- Substitute materials where possible
- Pursue system buying alternatives
- Optimise lifecycle costs
- Re-engineer joint processes
- Share productivity gains
- Integrate logistics
- Support supplier partner operations improvement
- Establish / develop key supplier partners
- Develop integrated supply-chain
- Supercharge process with consistent technology platform
- Monitor compliance through IT
- Reduce costs further by increasing volumes
- Identify means to reduce demand through rationalisatiion and / or substitution
Redeployment of Inventory
Inventory Visibility Through IT
Increased Use of Manufacturing Warranties
- Dispose of long-turn inventory to supplier partners
- Reduce downtime
- Manage inventory across entities
- Share inventory across sites
- Reduce downtime caused by lack of parts
- Implement process to improve warranty use
- Reduce downtime to improve service
MRO-009 Ver 1.2 (Dec 23)
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