Global consultancy firm AT Kearney presents a case study of the European maintenance, repair and operations (MRO) services market. The European external MRO market is expected to grow by 2% a year to about $82bn.
An – over the next three years. With more service providers coming to the scene, what does this mean for manufacturers?
Arecent study of MRO service concepts in Europe by AT Kearney finds that the 2008 financial crisis spurred a trend toward MRO outsourcing as companies sought to cut costs. The global energy consultancy’s study shows that the trend continues and is both supply- and demand-driven. On the supply side, large MRO service providers are focusing on meeting customers’ needs by providing quality services at affordable prices. On the demand side, pressure on manufacturers to reduce costs has increased the attractiveness of — and lowered the barriers to — advanced concepts in integrated MRO services.
MRO service providers: Managing complexity
MRO service providers offer a wide range of services — from pure parts delivery and execution of services to comprehensive planning and coordination. These latter services are performed by integrated MRO providers that often take on additional responsibilities such as coordinating multiple parts and services categories and assuming responsibility for equipment performance.
Providers of such highly integrated MRO services take on responsibility for manufacturers’ inventory, existing management and operations personnel, and implement IT solutions and management systems to monitor the flow of MRO products and services.
In addition, full-service contracts often include meeting agreed-to equipment availability and agreed-to total cost reductions in processes and purchased parts. Essentially, integrated MRO service providers must master the complexity of their clients’ overall service and parts requirements.
European MRO outsourcing growth
Overall, MRO volumes consist of two elements: internal, generated by in-house MRO employees; and external, purchased from MRO providers. In 2009, total MRO volume in Europe was approximately $119bn, or about 5% of the gross value-added of manufacturing industries.
Till 2014, the European MRO outsourcing market in terms of volume registered an annual growth of approximately 0.5% to about $122bn. This is lower than the growth of the manufacturing industries, which was 1.4% per annum till 2014. The lower growth for MRO in the 2009-14 period was driven by the expected 2.6% annual decline throughout the year due to the scale effects and efficiency improvements in internal MRO services. Outsourced MRO services grew by 2.1% annually to $82bn by 2014.
In assessing the degree of outsourcing maturity and the level of integration of MRO services across countries, AT Kearney found clear geographic differences. The highest levels of maturity and integration were seen in the United Kingdom, Scandinavia, Germany and the Netherlands. Southern and Eastern European countries, such as Spain, Italy and the Czech Republic are not as mature or integrated.
This is partly because production plants in Eastern and Southern Europe rely more on local workers and smaller companies to provide MRO services. Thus many large MRO service providers have not established service hubs in these regions because the demand does not justify the investment.
