Maintenance, repair and operations (MRO) activities are essential to keeping businesses in business. Perhaps counterintuitively, this subcategory of indirect spend encompasses purchases that are not deemed critical to a company's production processes or core end products and services. For this reason, MRO is often overlooked during regular spend and opportunity assessments, but shortsighted MRO strategies can pose a hindrance to top- and bottom-line growth. The reactive nature of MRO procurement, wide variety of MRO spend categories, unpredictable demand for MRO items and risks of procuring counterfeit or faulty products all have the potential to exacerbate downtime, which could result in lost revenue and extra costs. Businesses that anticipate their MRO needs (and act on them early) can more effectively eliminate potential threats to production before they arise.
The current technological wave — driven by the widespread dispersal of automation — is accelerating growth in MRO markets. Taking into consideration the enhanced technological capabilities that automation offers, buyers are seeking out predictive maintenance technologies to optimize their production processes and achieve greater operational consistency. Consequently, a pervasive mentality shift is underway among buyers of MRO goods and services; rather than aim to minimize downtime, why not look to guarantee uptime?
Buyers in MRO markets increasingly want proactive support, even if it comes at a premium price. Accordingly, more specialized third-party providers are entering MRO markets, and even original equipment manufacturers (OEMs) are branching out into aftermarket services. Together, these trends are fostering expansion in MRO markets; the US market for maintenance, repair and operations services is forecast to expand from an estimated $169.1 billion in 2020 to about $189.1 billion in 2023, representing annualized growth of about 4.2% during the next three years.
Heading into 2021, growth in MRO markets will persist in spite of the COVID-19 pandemic and recession, which have been crushing profit figures for businesses across the board. As the pandemic’s negative effects on business begin to fade, companies are likely to rely more heavily on MRO purchases as a method of fortifying their return on investment (ROI) and net assets (RONA).
In response to the US manufacturing sector’s difficulties weathering the COVID-19 pandemic, the National Institute of Standards and Technology (NIST) decided in March 2020 to fund eligible public-private partnerships aimed at researching, developing and implementing new manufacturing processes that reduce risk to the sector moving forward. While supporting innovation in MRO markets, the move also supports future revenue growth; as maintenance and repair-oriented goods and services become more advantageous and worthwhile to buyers, they will become more indispensable over time.
Janitorial services are most prevalent in educational, commercial and industrial settings. In the wake of the COVID-19 pandemic, demand for cleaning services is mounting, which is expected to pressure janitorial service prices upward at an estimated annualized rate of 1.9% through 2023. Buyers should prioritize suppliers that specialize in sterilization services, as their employees are properly trained in rapid-response biohazard cleaning. The surging demand increases the risk of labor shortages and makes price discounts more difficult to obtain, though buyers will have better luck negotiating with suppliers that are still heavily reliant on human labor and have not yet transitioned to more efficient robotic janitorial fleets.
Facilities Management Services
A wide range of goods and services falls under the facilities management umbrella, but security, grounds management and space planning are among vendors’ core competencies. As facility monitoring and building automation become more complex, facilities management service providers will be well-poised to leverage these trends to provide added value for buyers, taking the form of greater harmony between building functionality, efficiency, safety and comfort. Demand is thus forecast to swell in the next three years, with the average price for facilities management services rising an estimated 1.1% per year on average. During negotiations, buyers should inquire about how suppliers’ labor agreements have been affected by recent events; suppliers that have had to switch to a new provider of subcontracted labor may be experiencing impaired performance as a result, which is grounds for price negotiation.
MRO Inventory Management Services
Demand for MRO goods and services is erratic due to unstable consumer demand for finished goods and services which has proliferated during the COVID-19 pandemic and recession. These challenges are anticipated to persist into 2021, with businesses increasingly looking to optimize their MRO spend following the widespread economic standstill, in turn demanding more comprehensive and sophisticated inventory management services. For essential businesses, inventory management service providers are a good resource to determine eligibility for priority access to certain MRO goods and services. Prices for inventory management services are expected to increase mildly in the three years to 2023 at an annualized rate of 0.2%, meaning buyers would be well-served to enter into SLAs with definitive price ceilings sooner than later.
General Contractor Services
Demand for general contractor services is down, primarily due to stop-work orders on nonessential construction activities and businesses’ proclivity to shy away from new projects during the uncertain economic climate. Because the pandemic — and by extension, its consequences — is ongoing, demand and prices for general contractor services are expected to remain depressed heading into 2021, with only marginal price growth occurring in the three years to 2023. Buyers that must or are otherwise confident in their ability to take on, complete and afford projects requiring general contractors should aggressively negotiate with suppliers to obtain more favorable service rates. Considering general contractors’ broadening experience and qualifications in Leadership in Energy and Environmental Design (LEED), and project planning software’s climbing technological and organizational capabilities, now may be a good opportunity for buyers to score top-tier services at a discount.
- Advancements in automation are fueling demand for predictive technologies that support buyers’ growing desire for proactive maintenance, repair and operations strategies, which goes hand in hand with price growth.
- COVID-19 has been stifling demand for a variety of MRO goods and services, but pandemic-induced declines in corporate profit and other consequences will inspire greater performance-oriented investment in MRO markets moving forward.
- MRO management can be a stumbling block for even the most streamlined operations; as MRO market landscapes continue to complexify, service providers are becoming more capable, enabling buyers to focus more on core business functions.
By: Ayanna Leaphart