Strategic Value and Advanced Capabilities in MRO Procurement Report

This report delves into the evolving landscape of MRO (Maintenance, Repair, and Operations) procurement, highlighting the need for organizations to develop advanced capabilities to navigate the dynamic business environment. It emphasizes the importance of strategic supplier collaboration ...Read More

The business environment has been reshaped during the past decade because of the
emerging trends and challenges, thus creating new opportunities through which procurement can
enhance the overall performance of organizations. As most companies develop new global
supply chains to develop and look for expansion opportunities in emerging markets, supply chain
management and markets have become dynamic (Masteika & Čepinskis, 2015). It is important
to note that foreign exchange and commodity prices are more volatile in the current business
environment, mainly because of increased risk of disruptions in the supply chain. With such
volatility in the supply chain and market, excellence in traditional core competencies is not
enough for a firm to gain agility in its operations. Procurement challenges are also on the rise due
to dynamism in supply markets. Masteika et al. (2015) notes that in order to succeed in
addressing these challenges, procurement executives need to work collaboratively with strategic
suppliers in decision making to streamline the supply chain from end to end. Nowadays, many
procurement executives work directly with the Chief Financial Officers (CFO) and Chief
Executive Officer, which indicates that purchasing is of great strategic importance to
organizations.
To attain agility, there is need for procurement functions to develop and employ
specialized skills that ensure efficiency as they go beyond traditional cost management. This
should be done to improve the whole procurement process. In MRO purchasing specifically,
firms face the challenge of determining the capabilities that should be prioritized while at the
same time managing and facilitating cross-functional collaboration (Alinaghian, 2015). Various
leading procurement organizations have shown that systematic approach need to be adopted
when building capabilities that will result into agility in MRO procurements (Alinaghian,
2015). Most companies that have managed to address and reduce supply risks and volatility
through establishment of leading-procurement capabilities have significantly improved their
profit margins. Some are estimated to have increased their profitability by more than five
percentage points which is a greater return on investment. Additionally, building of strategic
supply chain management capabilities have led to development of innovative supplier
relationships thus improving service delivery and boosting business growth rates (Teece,
2017).
Advanced capabilities in MRO procurement to capture strategic value
It is true that the traditional role of purchase is supply of needed products, management of
spending on procurement items, and establishment of crucial long-term supplier relationships.
However, due to the rapidly changing business environment, companies demand that
procurement can develop enhanced capabilities that can result in attainment of competitive
advantage in the long run. To achieve this, the company requires a new approach to applying and
building skills. Management of organizations needs to come up with training programs that
address advanced capabilities, thus capturing strategic value, especially in areas where spending
is significant (Masteika et al. 2015). Additionally, since procurement involves interaction
between organizational functions and external partners (suppliers), it is crucial that procurement
team members develop their interpersonal skills in the process of building advanced capabilities.

Advanced capabilities in procurement typically can be classified into three major
categories, namely: cross-functional integration, high-end analytics, and the integrated supply-
market perspective. Cross-functional integration in MRO procurement is aimed at improving
close collaboration with suppliers and other business partners. Understanding of lead times and
replenishment rates is crucial in such partnerships as it helps in MRO demand forecasting. For
instance, cross-functional governance processes can help in the implementation of procurement
strategies across different units of an organization. The service requirements, on the other hand,
can be evaluated and optimized through the use of cross-functional design.
High-end analytics is capable of enhancing decision making in MRO purchasing through
the provision of precise life-cycle costs, which is necessary for the evaluation of total cost
ownership (Alinaghian, 2015). The analytics also allow market forecasting in procurement
based on previous demand. Procurement executives and management need to have in place
accurate data that can be used in procurement analytics models. Accurate data about MRO
purchases is essential because it provides crucial information to the company that is necessary
for negotiating with suppliers. When a company has specific information on price and order
fulfillment for all of its suppliers, it will have an advantage of negotiating for better and
favorable terms.
Lastly, having an integrated supply-market view provides a broad perspective of a firm's
supply chain that is necessary for the development of sourcing strategies (Masteika et al.
2015). Understanding the dynamics of the market supply chain is critical in coming up of MRO
procurement strategies. For instance, a firm can identify opportunities that it can pursue in
procurement alliances to benefit from economies of scale. Furthermore, the company’s current
positioning in the supply chain can be reviewed through examining the integrated supply chain.
An integrated approach to strategies in Building capabilities in MRO procurement
Companies need to build capacities through the application of integrated approach. There
are four major areas that the combined approach focuses on. The areas include: agreement on the
value that procurement contributes, the definition of action-oriented approach in the development
of skills and knowledge, application of robust approach when unveiling the capabilities and
implementation of enablers for improved procurement performance.
Agreement on what value the capability brings on company’s MRO procurement
Before any capability is designed and developed within the firm, it is important for
procurement executives and top management to agree on what skills or changes need to be made
to improve MRO purchasing. To attain maximum benefits in a capability development program,
key stakeholders should be involved to ensure that only capabilities that produce benefits such as
efficiency and cost reduction are chosen (Masteika et al. 2015). It also helps procurement
experts to figure out how applying enhanced capabilities can overcome challenges related to
supply chain challenges.
There is a need for companies to creation decision boards with people form procurement
and other departments of the company. The boards will be responsible for identifying required

advanced capabilities, and they will function to create agility in procurement. The boards also
have a responsibility of reviewing their reconfiguration plans so that to prioritize which
capability building approaches should come first. Depending with the industry in which the
company operates, the strategic priorities for procurement need to be developed.
Alinaghian, L.S., 2015. Operationalising dynamic capabilities: A Supply network
configuration approach (Doctoral dissertation, University of Cambridge).
Masteika, I. and Čepinskis, J., 2015. Dynamic capabilities in supply chain
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Nelson, R.R. and Winter, S.G., 2002. Evolutionary theorizing in economics. Journal of
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Teece, D. and Pisano, G., 2003. The Dynamic Capabilities of Firms: An
Introduction. International library of critical writings in economics, 163, pp.223-
242.
Teece, D.J., 2017. A capability theory of the firm: an economics and (strategic)
management perspective. New Zealand Economic Papers, 53(1), pp.1-43.
Teece, D., and Pisano, G., 2003. The Dynamic Capabilities of Firms: An Introduction.
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