Closing the MRO Gaps

Companies that sell spare parts, chemicals and other maintenance, repair and operating (MRO) supplies are scrambling to adapt to evolving customer expectations.

Roger Schiyer | UPS

Manufacturing long-lasting equipment — think industrial machinery — can be a profitable business, especially for those who understand their markets and customers best.

But the real profit opportunity comes after the machinery is sold. That’s because equipment owners typically spend many times the original purchase price on spare parts, chemicals and other materials required to keep that asset working during a machine’s long lifespan.

In fact, the average manufacturer spends more than 40 percent of its annual equipment outlay on maintenance- and repair- related expenses, according to a IHS Markit report.

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But the real profit opportunity comes after the machinery is sold.

Bottom line? There are many opportunities for those looking to help companies maintain, repair and operate (MRO) their facilities.

And what is even nicer? There is plenty of room for players in the MRO space because unlike the machinery manufacturing industry itself, which is dominated by a few dozen global players, the business remains fragmented with legions of highly specialized distributors.

In the United States alone, there are still many companies — from the product manufacturers themselves to very specialized mom-and-pop distributors — ready to serve industrial customers of all sizes that are looking for supplies.

There are also numerous smaller businesses, some run from home, which need supplies to keep their operations running every day.

No single company determines the industry’s direction. In the U.S., where MRO buyers spend an estimated $180 billion annually on everything from critical parts to keep their production lines humming to mops and brooms to keep their factory floors clean, the largest player with 1.5 million different SKUs serves just 6 percent of the market.

[Also on Longitudes: Manufacturing Customer Satisfaction]

Growth and disruption

But the industry, which has enjoyed decades of steady demand, is at a pivot point as e-commerce accounts for a larger percentage of total sales.

The industry’s customers, thoroughly accustomed to today’s leading online retailers, expect the same kind of experience when they’re buying industrial parts or chemicals for their businesses.

They are looking for immediate product availability, easy customization and fast delivery.

Channel shifting could either make or break your business depending on how you adjust to today’s marketplace.

The proof is in the numbers. According to a recent UPS white paper that surveyed 300 MRO professionals, 72 percent of industrial products buyers would switch suppliers for a better website.

In addition, 38 percent of buyers have gone outside their supply base to purchase online from another supplier for the first time.

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Sellers need to raise their game to meet growing consumer expectations or risk losing their business to competitors.

As MRO spending is shifting away from traditional sources – and at a greater pace with larger businesses purchasing MRO supplies – sellers need to raise their game to meet growing consumer expectations or risk losing their business to competitors.

Adding to the complexity: While MRO buyers of all ages are moving toward online channels, they’re not abandoning traditional shopping approaches for industrial supplies.

So MRO sellers need to ensure the information buyers need is available through any channel a buyer prefers.

Additionally, MRO suppliers must recognize disruptive technologies, such as 3D printing. This technology can be used for used for prototyping and limited production runs, and according to the study, nearly one-third of buyers and sellers say it has a major role in the future of MRO.

[Also on Longitudes: Move Over Lean Six Sigma, Here Comes Smart Operations]

Moving forward

Navigating the new landscape isn’t easy, and sellers need to ask themselves whether or not their capabilities are aligned to meet buyers’ expectations.

A competitive edge used to be about superior products. But with so many industrial distributors selling the same products made by the same manufacturer, product quality – while still important – is no longer the key factor that makes a customer choose a particular distributor.

MRO suppliers must re-imagine their operations, which may require significant investment in an efficient, flexible supply chain.

The white paper suggests that MRO sellers, even small, highly specialized mom-and-pop shops, can adapt and avoid the fate of numerous brick and mortar businesses that lost customers to their online competitors.

Furthermore, MRO suppliers can recalibrate their businesses and improve operations with less investment and risk.

In the face of many looming challenges, significant opportunities also exist. These changes on the horizon will determine where sellers place their business bets. goldbrown2

Click here to download the UPS MRO whitepaper.

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Every morning, wake up to the blog that gives you the latest trends shaping tomorrow.

Roger Schiyer is Director of Marketing for the Enterprise Industrial and Automotive industry segment at UPS.

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