Mro on the_move


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Mro on the_move

  1. 1. MRO on the MoveOutsourcing maintenance, repair and operations
  2. 2. T o improve quality in certain critical operations and reduce costs in others, many industrial manufacturing companies are turning to integrated maintenance, repair and operations (MRO) serviceconcepts. While internal MRO services for industrial production areprojected to decline by 3 percent per year over the next three years,the European market for external MRO services is expected to growby 2 percent a year — to about €60 billion ($82 billion) — over the sameperiod. With MRO on the move, and more external providers coming onscene, what does this mean for manufacturers?A.T. Kearney’s recent study of MRO service con- responsibility for equipment performance. Pro-cepts in Europe finds that the financial crisis viders of such highly integrated MRO servicesspurred a trend toward MRO outsourcing as com- take on responsibility for manufacturers’ inven-panies sought to cut costs. Our study shows that tory, existing management and operations person-the trend continues and is both supply- and nel, and implement IT solutions to monitor thedemand-driven. On the supply side, large MRO flow of MRO products and services. In addition,service providers are focusing on meeting cus- full-service contracts often include meetingtomers’ needs by providing quality services at agreed-to equipment availability and agreed-toaffordable prices. On the demand side, pressure total cost reductions in processes and purchasedon manufacturers to reduce costs has increased the parts. Essentially, integrated MRO service provid-attractiveness of—and lowered the barriers to— ers must master the complexity of their clients’advanced concepts in integrated MRO services. overall service and parts requirements. In Europe, MRO providers are differentiatedMRO Service Providers: Managing according to their geographic and service-categoryComplexity coverage. Generally, geographic coverage is eitherMRO service providers offer a wide range of national or European. (A few regional providersservices—from pure parts delivery and execution exist, but they typically deal in low-level serviceof services to comprehensive planning and coordi- categories such as equipment cleaning, wherenation. These latter services are performed by salary levels do not justify long travel distances.)integrated MRO providers that often take on addi- Service categories include maintenance and repair,tional responsibilities such as coordinating multi- operating material, equipment cleaning, equip-ple parts and services categories and assuming ment installation and assembly. mro on the move | A.T. Kearney 1
  3. 3. Tracking Growth of European equipment installation and assembly will have the MRO Outsourcing highest growth rate (5.6 percent) through 2014, Overall, MRO volumes consist of two elements: while operating material will have the lowest internal, generated by in-house MRO employees, growth rate but will remain the largest external and external, purchased from MRO providers. In MRO service type (see figure 1). 2009, total MRO volume in Europe was approxi- In assessing the degree of outsourcing matu- mately €87 billion ($119 billion), or about 5 per- rity and the level of integration of MRO services cent of the gross value-added of manufacturing across countries, we found clear geographic dif- industries. We expect an annual growth of approx- ferences. The highest levels of maturity and inte- imately 0.5 percent through 2014 to about €89 gration are in the United Kingdom, Scandinavia, billion ($122 billion). This is lower than the Germany and the Netherlands. Southern and growth of the value-added of manufacturing Eastern European countries, such as Spain, Italy industries, which we estimate will be 1.4 percent and the Czech Republic, are not as mature or per annum through 2014. The lower growth for integrated. This is partly because production MRO is driven by the expected 2.6 annual decline plants in Eastern and Southern Europe rely more through 2014 due to the scale effects and effi- on local workers and smaller companies to ciency improvements in internal MRO services. provide MRO services. Thus many large MRO We see outsourced MRO services growing 2.1 service providers have not established service percent annually, to €60 billion ($82 billion), by hubs in these regions because the demand does 2014. Within the four main MRO service types, not justify the investment. Figure 1 European market for MRO services Overall MRO market volume: internal versus external External MRO market volume by service type (€ bn, %) (€ bn) 0.5% 2.1% €60 €87 €89 €54 €14 Maintenance €29 €11 4.4% (23%) and repair €33 -2.6% (33%) Internal (38%) (21%) €33 Operating €32 0.6% (55%) materials (60%) €60 External €54 2.1% (67%) (62%) Equipment and cleaning 1.8% €5 (8%) €4 (8%) €8 Equipment installation €6 (11%) 5 6% 5.6% 6% (13%) and assembly 2009 2014e 2009 2014e Compound annual growth rate Source: A.T. Kearney analysis2 mro on the move | A.T. Kearney
  4. 4. Crisis Exposed, Decentralization’s evident in 2008-2009, when the global financialDisadvantages crisis was at its worst. The independently operat-Growth for large European MRO service providers ing structure that worked so well when industrialhas come through either a centralized or decen- output was strong made enterprise-wide liquiditytralized business model. The centralized model, improvement efforts and cost-reduction initia-employed by only a few of Europe’s large MRO tives difficult when the economy faltered. In otherproviders, aims to achieve growth through com- words, the lack of integrated processes and controlprehensive process integration and control mech- mechanisms between headquarters and subsidiar-anisms. Most providers, though, have relied on ies was a barrier to belt-tightening. The decentral-the decentralized model, which aims to acquire ized model also limited future growth with largecompetitors and position them as local subsid- customers that expected integrated service deliv-iaries. These subsidiaries operate independently ery for multiple manufacturing plants across sev-as long as revenue and profit targets are met. In eral geographic regions, as such service deliveryperiods of strong industrial output growth, this requires solid key account and delivery processesbusiness model has proved to be ideal. within the entire group, not just the local units. However, the decentralized business model To address these disadvantages, several largehas its disadvantages (see figure 2). These became MRO providers started integration programs toFigure 2Decentralized business model Headquarters g s liv ice tin d ce n llin d t IT en ic in ke an ur a ro an y g so um s g st s de erv em er ha ar s nt e gi m ale re H co anc S ag Lo rc S Pu an Fin M Supplier and service Subsidiary 1 Customer partner Subsidiary 2 Subsidiary 3 Subsidiary 4 Advantages Disadvantages • Smoother integration and motivated local management • More barriers • Faster growth across geographies • Less local support to implement cost reduction initiatives • More knowledge of local issues and customer requirements • Little coordination of sales activities and operations across • Quicker decision-making regarding operational issues countries Key responsibility Source: A.T. Kearney analysis mro on the move | A.T. Kearney 3
  5. 5. improve process alignment and control mecha- We have observed several successful trans- nisms between headquarters and subsidiaries. At formations to integrated MRO service provider the same time, several integrated providers stream- concepts. Each followed a three-step approach (see lined their key account management processes in figure 3). First, a “health check” is performed, an effort to improve their methods for fulfilling which includes identifying existing MRO concepts customers’ needs for outsourced MRO services and processes employed at the plant level. The across geographies. MRO Demand: Transformation Programs Pressure on manufacturers to for Integrated Services The trend toward outsourcing reduce costs has increased the MRO services varies widely among industries. For example, many asset- attractiveness of — and lowered intensive industries—such as chem- icals, steel and paper—continue to the barriers to — advanced con- bring MRO service providers into cepts in integrated MRO services. their businesses. Their aim is to become more cost flexible, a lesson learned from the economic crisis. Other industries prefer to use predominantly check also ensures the availability and transparency internal MRO services combined with selective of MRO data in IT systems (for example, spare use of external MRO service providers for complex parts and services descriptions), identifies the MRO production equipment. These industries—auto- cost base for parts, services and processes, and motive is a prime example—typically use non- makes sure that all prerequisites, such as availability standardized production technologies. of preventive maintenance, are being fulfilled. Figure 3 Integrated MRO services: a three-step process 1 2 3 Perform MRO health check Define MRO concept Implement MRO concept • Identify existing MRO concept and • Define MRO concept at plant level • Assign responsibilities and define processes at plant level operational targets • Prepare action plan • Check IT systems availability and • Launch implementation plan • Prioritize MRO services transparency of MRO data • Set up program office • Create implementation plan • Identify MRO cost base for parts, • Measure cost savings services, processes • Determine prerequisites for an integrated MRO concept Source: A.T. Kearney analysis4 mro on the move | A.T. Kearney
  6. 6. Figure 4Segment MRO services by operations and value-add Example: Automotive Fulfill core MRO services Fulfill OEM-specific quickly and easily services Provide Critical • Perform general maintenance • Maintain robots superior quality operations of wear and tear parts • Maintain OEM equipment and service • Repair bottleneck production • Manage spare part production equipment equipment Capitalize on available Leverage volume internal resources effects of suppliersNon-critical • Purchase general operations • Clean machines Focus on operations materials cost savings • Maintain forklifts • Optimize general production systems Internal value-add External value-add Source: A.T. Kearney analysis Next, the overall MRO concept is defined, is essential to success, with senior managementtaking into consideration all the requirements of oversight to monitor and track implementationmanufacturing, maintenance, purchasing and other progress, measure cost savings and quickly resolvefunctions identified in the MRO health check. At barriers. Some of the most common barriersthe same time, an action plan is prepared, out- to overcome include an inability to fulfill OEMlining how to achieve all the prerequisites for specifications and warranties, excessive depen-implementing the integrated MRO concept. dency on key suppliers, resistance to switchingWhen defining the action plan, it is essential to suppliers (after spending years building supplierclassify MRO services into critical and non-critical relationships it is difficult to break them), andmanufacturing operations, and to differentiate a general fear-of-risk inherent in many internalbetween internal and external services according maintenance departments. For the latter two bar-to their value-add (see figure 4). This ensures avail- riers, resistance to new suppliers can be alleviatedability and quality of services for critical opera- through purchase-cost reductions and reducingtions, and cost-savings for non-critical operations. the total number of suppliers to be managed; Step three is implementation, where responsi- mollifying the risk averse can be accomplished bybilities are assigned and operational targets are improving MRO services for critical operations.agreed upon. Here a program-management office In the end, getting past these barriers is well worth mro on the move | A.T. Kearney 5
  7. 7. the effort—companies have reduced MRO costs MRO providers could become. What sets these by up to 15 percent per year for parts, services and North America leaders apart? They: processes using this transformation model. • Have strong account management capabilities, which are used to better serve their customers North America: A Step Ahead in North America — and, increasingly, outside Integrated MRO service provider concepts are North America. more mature in North America than in European • Leverage pricing and availability of local suppli- markets. The North America industry has always ers, then develop a solid supply chain to expand coverage across plants and geographic regions. • Build close relationships with a large We think the top providers in number of manufacturers and are nimble enough to leverage their tech- North America are excellent nical expertise as necessary. • Make seamless interactions with enter- examples of what European prise resource planning (ERP) and procurement systems and invest time integrated MRO providers and resources to connect online with could become. their customers. • Develop strong relationships with low-cost country supply sources, thus addressing customers’ demands for been more competitive and cost-sensitive; the less expensive standardized parts and opera- economic downturn intensified their aggressive ting materials. pricing strategies to gain (and retain) business. • Provide transparency into their MRO spend and Many integrated MRO service providers are get- use all relevant tools to optimize inventories. ting parts and operating materials from lower- cost countries, and some are expanding into new Delivering on Customers’ Requirements products and services. Manufacturers are con- What do customers want? In which areas do MRO tracting with these suppliers for various capabili- service providers need to do their homework and ties, including sourcing, procurement, logistics, come up with correct answers? Cost savings, of reporting, invoicing and payment for all parts course. Customers want to know in which MRO and services. categories and processes the integrated MRO ser- Integrated MRO providers in North America vice provider can help them cut costs. They want manage their customers’ manufacturing complex- assurance that quality and delivery are key capabil- ity for plants both within and outside their bor- ities and that their plants can be served on a global ders —improving their processes, cost savings scale with common standards. With MRO on the and delivery capabilities on an international level. move, those that offer the right answers in all We think the top providers in North America are areas—costs, quality, delivery and global reach— excellent examples of what European integrated will be in the best position for success.6 mro on the move | A.T. Kearney
  8. 8. AuthorsMartin Haubensak is a partner in the automotive practice. Based in the Dusseldorf office, he can be reachedat Wessmann is a partner in the operations practice. Based in the Dusseldorf office, he can be reachedat Lamb is a principal in the automotive practice. Based in the Detroit office, he can be reachedat Mickelson is a principal in the automotive practice. Based in the Detroit office, he can be reachedat Graef is a consultant in the Munich office. He can be reached at mro on the move | A.T. Kearney 7
  9. 9. A.T. Kearney is a global management consulting firm that uses strategic For information on obtaininginsight, tailored solutions and a collaborative working style to help clients additional copies, permissionachieve sustainable results. Since 1926, we have been trusted advisors on to reprint or translate this work,CEO-agenda issues to the world’s leading corporations across all major and all other correspondence,industries. A.T. Kearney’s offices are located in major business centers please contact:in 38 countries. A.T. Kearney, Inc.AMERICAS Atlanta | Boston | Chicago | Dallas | Detroit | Mexico City Marketing & Communications New York | San Francisco | São Paulo | Toronto 222 West Adams Street Washington, D.C. Chicago, Illinois 60606 U.S.A.EUROPE Amsterdam | Berlin | Brussels | Bucharest | Copenhagen 1 312 648 0111 Düsseldorf | Frankfurt | Helsinki | Istanbul | Kiev | Lisbon email: Ljubljana | London | Madrid | Milan | Moscow | Munich Oslo | Paris | Prague | Rome | Stockholm | Stuttgart Vienna | Warsaw | Zurich Bangkok | Beijing | Hong Kong | Jakarta | Kuala LumpurASIA PACIFIC Melbourne | Mumbai | New Delhi | Seoul | Shanghai Singapore | Sydney | TokyoMIDDLE EAST Abu Dhabi | Dubai | Johannesburg | Manama | Riyadh& AFRICA© 2011, A.T. Kearney, Inc. All rights reserved.A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea.
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