Managing MRO Shortages Through the COVID-19 Pandemic
Often when we think of manufacturing, we think about the products it yields. Perhaps we think about the raw materials or circuit boards that are put together to create those products on the manufacturing lines. But what powers each step of the manufacturing process? That is where maintenance, repair and operations (MRO) comes in. And thanks to the pandemic, MRO shortages have caused strains throughout the supply chain for the past two years.
The MRO market consists of a wide array of sub-commodities that power manufacturing. Industrial, small electronics, fluids, spare parts, MEPs (mechanical, electrical and plumbing), shop supplies and office supplies are some of the key MRO commodities. From masks and gloves to the repair of broken machines to printer paper, MRO makes production run seamlessly (and, most importantly, safely).
The current MRO shortages were kickstarted by the high demand and short supply of personal protective equipment (PPE) — particularly masks and nitrile gloves — at the onset of COVID-19. Since then, the pandemic has created and prolonged material supply and demand imbalances, as well as logistics constraints, throughout the MRO market.
Impact of COVID-19 on MRO Shortages
Availability of MRO supplies has slowly but constantly and consistently improved since the start of the COVID-19 pandemic in early 2020. However, if you look at the market today, there still are some pockets of challenges. Current pain points are predominantly driven by constraints with original equipment manufacturer (OEM) production and logistics, as well as component shortages, workforce reductions and labor shortages.
Across the board, costs have been increasing quarter-over-quarter for key raw materials like wood and steel as well as electronic components and chips. Additionally, the U.S. annual inflation rate hit 9.1% for June 2022 — cooling off a bit to 8.5% in July 2022, but still representing the largest year-over-year jump in prices since 1982. Most MRO suppliers are unable to absorb this extra expense into their cost structures, so OEMs and procurement organizations should prepare to see ongoing price increases.
In one form or another, most material suppliers and manufacturers who depend on them are still facing shortages caused by COVID-19 and increased demand.
Consumer demand is driving record levels of production, including MRO materials, that OEMs were not prepared for based on historical data and demand forecasts. As suppliers work to clear backlogs and meet continually high demand, expect to see MRO shortages last at least through the first half of 2022.
Throughout the pandemic, the types of MRO products facing shortages have varied based on consumers’ (and therefore manufacturers’) shifting needs. When virus outbreaks first began, supply of PPE and sanitary supplies like isopropyl alcohol did not meet the skyrocketing demand of employers, healthcare facilities and individual consumers.
Fast forward to early 2022, and supply of surgical and N95 masks and cleaning supplies has caught up to demand — allowing non-healthcare workers to upgrade their personal masks to higher quality options for better protection against COVID-19 surges. Now, goods that require electronic components or PCBAs are most heavily impacted due to component shortages. Chemicals and certain safety supplies, most notably nitrile gloves, also remain constrained.
Logistics constraints have persisted throughout the pandemic as unprecedented volatility continues to impact all major trade lanes across most transport modes, adding to shortages. These issues stem largely from the fact that MRO suppliers are largely reliant on materials from overseas sources. At the beginning of the pandemic, Supply Chain Management Review surveyed 350 top-tier MRO suppliers and found that 40% of them source materials directly from China. Of those companies sourcing directly from China, only 60% had identified alternate sources for their materials.
The MRO industry also faces a skilled labor shortage that has been exacerbated by, but predates, the pandemic. Manufacturing technology’s increasing complexity has made repairs more challenging, and there are fewer technicians in the market who can effectively solve maintenance issues. An aging workforce is not being replaced by younger technicians either.
To account for material delays and a lack of skilled labor, OEMs have begun reassessing their MRO supply chain and procurement strategies. The end goal — having the amount of MRO supplies they need when they need them — hasn’t changed. How they achieve those goals, and what is considered the “right amount” of inventory, has changed.
To Overcome Shortages, Increase Resilience in the MRO Supply Chain
The MRO shortages we’ve seen throughout the pandemic have influenced how procurement and inventory control teams view inventory. While manufacturers have focused on lean or just-in-time principles since the 1970s, those long-held practices contributed to the supply shortages of the past two years.
To combat this, manufacturers have adjusted their comfortable minimum and maximum inventories and increased their tolerance for days of inventory on hand (or DoH). Companies are moving to ensure there is enough supply of critical supplies that a spike in demand will not impact operations and drive a line-down situation. As just one example, according to Supply Chain 24/7, pre-pandemic, PPE accounted for roughly 5% to 10% of an OEM’s MRO inventory. That’s since expanded to 15% to 30% on average and up to 50% for some organizations.
While every organization must be sensitive to MRO inventory, for your business-critical products and materials, I would recommend that the days on hand and the min-max reorder points be adjusted to a point that is a bit more risk-averse. After all, while MRO spend typically accounts for only five to 10% of a company’s budget, a lack of supplies can have an outsize impact. Imagine — too little of a critical chemical is ordered and an entire line shuts down, or worse, there isn’t enough PPE to properly protect employees. The individual goods might be cheap, but their absence comes at a high cost.
Building Supplier Relationships to Navigate MRO Shortages
More than two years into the COVID-19 pandemic, there is a new norm for how companies manage and procure these goods — leaning less on risk and more on resilience. Supply chain organizations should look to implement a more risk-averse strategy in the key areas of MRO that are critical to operations by implementing new strategies that help drive resilience in the overall supply chain.
To ensure MRO supplies are acquired, many organizations have enhanced their partnership strategies since the pandemic, moving relationship development to a much higher level of priority. Prior to the early 2020s, relationships between manufacturers and MRO suppliers were, for the most part, transactional in nature with a primary focus on strategic goods or services.
That's carried a high cost to operations. Access to goods that were not previously of huge importance but were historically simple to access with stable prices, like gloves and masks, suddenly became incredibly limited as manufacturers scrambled to find new suppliers. To avoid this extra panic on top of an emergency, supplier relationship management — deepening relationships with existing MRO suppliers and, where possible, expanding the scope of your spend with those suppliers — is critical to bolstering your MRO supply chain.
Another way to increase resilience in your supply network is to consider nearshoring at least some of your suppliers to reduce the geographical variances in variables and shorten delivery times. As I’ve previously discussed, international border closures, a spike in demand and increasing lead times throughout the pandemic have made historically simple shipments (say, between Europe and the United States) an unforeseen challenge. Even before the pandemic, new tariffs on Chinese imports had spurred companies to reconsider their sourcing strategies.
Sticking with our example, moving goods from the U.S. to Europe or vice versa is becoming difficult, and the amount of time it takes for the goods to get there is increasing every day. Nearshoring or reshoring of supply, or sourcing from suppliers in the same region as your delivery destination, does a great job of focusing on how to best service a particular region directly. Manufacturer’s focus should move away from single- or even dual-source global supplier plans to more of an expanded supply base that can provide support regionally if (and when) situations arise.
An Expanded MRO Vendor List Strengthens the Supply Chain
The supply chain crisis spurred by the pandemic has also emphasized this need for organizations to have multiple approved vendors for every necessary material and component, including for MRO. As the MRO market is still maturing globally, including in the crucial Asia-Pacific region, there are a few considerations organizations should take when vetting new suppliers entering the marketplace.
First, start with the basics:
What areas of MRO are their specialties?
Can they be a viable partner for many of your MRO commodity needs?
Do they have the appropriate subject matter expertise across their portfolio if they offer services for multiple commodities?
If you’ve had experiences with this supplier before, did they meet your team’s expectations of quality and timeliness? Let those answers guide your next steps.
To help gauge a company’s maturity, look at its footprint. Does it operate from a single site or multiple locations? Do they have global distributor partnerships? A partnership with a global distributor helps to address many of the challenges procurement organizations are addressing in today’s environment — including access to supply, shortening logistics routes to improve lead time, and in some situations, confirmation of quality and assurance of original material. Counterfeit products and materials are uncommon, but they have been known to exist in the MRO supply chain. Taking proactive steps to ensure you’re purchasing only from reputable sources is of the utmost importance for goods like PPE; a lack of oversight has unfortunately led to millions of counterfeit N95, KN95 and KF94 masks flooding the market throughout the pandemic.
On the flip side, while having multiple approved suppliers already vetted in your procurement system is one way to reduce risk, regularly using a large number of suppliers for the same product can cause headaches for your procurement team and open opportunities for risk. Wherever possible, standardize products and processes. This will limit exposure to variation, which will in turn drive stronger supplier relationships with increased volumes.
If you buy 10 variations of a singular item — say, surgical masks — from 10 different sources, that puts unnecessary strain on your supply chain. Consolidate that to one or two items from just a few sources (with additional, already-approved suppliers on backup in case of emergency). These increased volumes will help you enhance your relationships with existing suppliers, gain more control over your supply chain and ultimately be able to better service your business.
There are few challenges that interfere with normal business operations more than a crucial tool or piece of machinery going down for repairs. Thanks to data and cutting-edge MRO technology, it’s possible to prevent lines from going offline in the first place.
Predictive Maintenance and MRO Technology
Predictive maintenance, which relies on data and analysis of that data by artificial intelligence to determine when technicians are needed, is a key component of the factory of the future. It takes much of the guesswork out of when certain goods will need to be in inventory and when maintenance of manufacturing machinery should be scheduled. Predictive analytics provide manufacturers the ability to have a firm understanding of their timeline, which helps empower procurement departments to implement more strategic buying.
To gather the maintenance data, sensors built into manufacturing equipment can provide real-time information on the machinery's usage and condition. Once sensors have collected the data, artificial intelligence and machine learning can analyze it to “see” problems or inefficiencies and alert technicians that a piece of equipment needs service.
Artificial intelligence can also determine how to take that machine offline while minimizing downtime and keeping production lines running as efficiently as possible, removing the guesswork from employees. Instead of maintenance being performed after a set number of months or hours of use, it can wait until the sensor signals there’s a problem with the machine — keeping it online for longer.
When technicians arrive at the factory to begin repairs, they may not be greeted by a paper maintenance brochure like in decades past. Thanks to the advent of augmented reality (AR), they instead could be using a headset or pair of smart glasses to show them an AR overlay of the machine and how to fix it. This also gives the OEMs of the machinery flexibility with their customers; they can connect virtually with repair staff on site at a customer’s factory, eliminating the need to send a representative out in person.
The MRO market is vast, so the solutions to its challenges are similarly diverse, ranging processes, people and technology. Maintenance, repairs and operations encompass such a wide array of categories and commodities that the industry will likely always see some degree of constraint, even at a low level. As the market changes, supply chain and sourcing strategies must also evolve to keep up.
Those strategies should start with supplier relationships. One of the key ways Jabil was able to maintain supply chain resilience and regular operations during the pandemic was through our strong relationships with our suppliers. Focus on the relationships you have and work to develop new ones in the areas of MRO that are critical to your business.
Identifying those business-critical MRO needs is the biggest lesson to take away from the pandemic experience. At the end of the day, keeping business moving toward your customers’ goals and — most importantly — ensuring all employees go home healthy and safe are proof of a resilient MRO strategy.