MRO on the Move

Outsourcing maintenance, repair and operations

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) service
concepts. While internal MRO services for industrial production are
projected to decline by 3 percent per year over the next three years,
the European market for external MRO services is expected to grow
by 2 percent a year to about 60 billion ($82 billion) over the same
period. With MRO on the move, and more external providers coming on
scene, what does this mean for manufacturers?
A.T. Kearneys recent study of MRO service concepts in Europe finds that the financial crisis
spurred a trend toward MRO outsourcing as companies sought to cut costs. Our 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 ofand lowered the barriers to
advanced concepts in integrated MRO services.

MRO Service Providers: Managing

Complexity
MRO service providers offer a wide range of
servicesfrom 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 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.
In Europe, MRO providers are differentiated
according to their geographic and service-category
coverage. Generally, geographic coverage is either
national or European. (A few regional providers
exist, but they typically deal in low-level service
categories such as equipment cleaning, where
salary levels do not justify long travel distances.)
Service categories include maintenance and repair,
operating material, equipment cleaning, equipment installation and assembly.
mro on the move

A.T. Kearney

Tracking Growth of European

MRO Outsourcing
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 87 billion ($119 billion), or about 5 percent of the gross value-added of manufacturing
industries. We expect an annual growth of approximately 0.5 percent through 2014 to about 89
billion ($122 billion). This is lower than the
growth of the value-added of manufacturing
industries, which we estimate will be 1.4 percent
per annum through 2014. The lower growth for
MRO is driven by the expected 2.6 annual decline
through 2014 due to the scale effects and efficiency improvements in internal MRO services.
We see outsourced MRO services growing 2.1
percent annually, to 60 billion ($82 billion), by
2014. Within the four main MRO service types,

equipment installation and assembly will have the

highest growth rate (5.6 percent) through 2014,
while operating material will have the lowest
growth rate but will remain the largest external
MRO service type (see figure 1).
In assessing the degree of outsourcing maturity and the level of integration of MRO services
across countries, we found clear geographic differences. The highest levels of maturity and integration are 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.

Figure 1
European market for MRO services

Overall MRO market volume: internal versus external

( bn, %)

87

0.5%

External MRO market volume by service type

( bn)

2.1%

60

11
(21%)

4.4%

14
(23%)

Maintenance
and repair

32
(60%)

0.6%

33
(55%)

Operating
materials

89
54

33
(38%)

54
(62%)

-2.6%

2.1%

29
(33%)

60
(67%)

2014e

2009
Compound annual growth rate

mro on the move

A.T. Kearney

Internal

External

4 (8%)

1.8%

6 (11%)

55.6%
6%
6%

2009

5 (8%)
8
(13%)

Equipment
and cleaning
Equipment installation
and assembly

2014e
Source: A.T. Kearney analysis

Crisis Exposed, Decentralizations

Disadvantages
Growth for large European MRO service providers
has come through either a centralized or decentralized business model. The centralized model,
employed by only a few of Europes large MRO
providers, aims to achieve growth through comprehensive process integration and control mechanisms. Most providers, though, have relied on
the decentralized model, which aims to acquire
competitors and position them as local subsidiaries. These subsidiaries operate independently
as long as revenue and profit targets are met. In
periods of strong industrial output growth, this
business model has proved to be ideal.
However, the decentralized business model
has its disadvantages (see figure 2). These became

evident in 2008-2009, when the global financial

crisis was at its worst. The independently operating structure that worked so well when industrial
output was strong made enterprise-wide liquidity
improvement efforts and cost-reduction initiatives difficult when the economy faltered. In other
words, the lack of integrated processes and control
mechanisms between headquarters and subsidiaries was a barrier to belt-tightening. The decentralized model also limited future growth with large
customers that expected integrated service delivery for multiple manufacturing plants across several geographic regions, as such service delivery
requires solid key account and delivery processes
within the entire group, not just the local units.
To address these disadvantages, several large
MRO providers started integration programs to

Figure 2
Decentralized business model

Supplier
and service
partner

IT

re H
so um
ur a
ce n
s
Fin
co anc
nt e
ro an
llin d
g
M
an
ag
em
en
t

S
de erv
liv ice
er
y
S
m ale
ar s
ke an
tin d
g

ic
Lo
gi
st

Pu
rc

ha
s

in

Headquarters

Customer

Subsidiary 1
Subsidiary 2
Subsidiary 3
Subsidiary 4

Advantages

Smoother integration and motivated local management

Faster growth across geographies
More knowledge of local issues and customer requirements
Quicker decision-making regarding operational issues
Key responsibility

Disadvantages
More barriers
Less local support to implement cost reduction initiatives
Little coordination of sales activities and operations across
countries
Source: A.T. Kearney analysis

mro on the move

A.T. Kearney

improve process alignment and control mechanisms between headquarters and subsidiaries. At
the same time, several integrated providers streamlined their key account management processes in
an effort to improve their methods for fulfilling
customers needs for outsourced MRO services
across geographies.

MRO Demand:
Transformation Programs
for Integrated Services

We have observed several successful transformations to integrated MRO service provider

concepts. Each followed a three-step approach (see
figure 3). First, a health check is performed,
which includes identifying existing MRO concepts
and processes employed at the plant level. The

Pressure on manufacturers to
reduce costs has increased the

The trend toward outsourcing

MRO services varies widely among
industries. For example, many assetintensive industriessuch as chemicals, steel and papercontinue to
bring MRO service providers into
their businesses. Their aim is to
become more cost flexible, a lesson
learned from the economic crisis.
Other industries prefer to use predominantly
internal MRO services combined with selective
use of external MRO service providers for complex
production equipment. These industriesautomotive is a prime exampletypically use nonstandardized production technologies.

attractiveness of and lowered

the barriers to advanced concepts in integrated MRO services.
check also ensures the availability and transparency
of MRO data in IT systems (for example, spare
parts and services descriptions), identifies the MRO
cost base for parts, services and processes, and
makes sure that all prerequisites, such as availability
of preventive maintenance, are being fulfilled.

Figure 3
Integrated MRO services: a three-step process

Perform MRO health check

Identify existing MRO concept and
processes at plant level
Check IT systems availability and
transparency of MRO data
Identify MRO cost base for parts,
services, processes
Determine prerequisites for an
integrated MRO concept

mro on the move

A.T. Kearney

Define MRO concept

Define MRO concept at plant level
Prepare action plan
Prioritize MRO services
Create implementation plan

Implement MRO concept

Assign responsibilities and define
operational targets
Launch implementation plan
Set up program office
Measure cost savings
Source: A.T. Kearney analysis

Figure 4
Segment MRO services by operations and value-add

Fulfill core MRO services

quickly and easily
Critical
operations

Perform general maintenance

of wear and tear parts
Repair bottleneck production
equipment

Fulfill OEM-specific
services
Maintain robots
Maintain OEM equipment

Purchase general operations

materials
Optimize general production
systems

Provide
superior quality
and service

Manage spare part production

equipment

Capitalize on available
internal resources
Non-critical
operations

Example: Automotive

Leverage volume
effects of suppliers
Clean machines
Maintain forklifts

Internal value-add

Next, the overall MRO concept is defined,

taking into consideration all the requirements of
manufacturing, maintenance, purchasing and other
functions identified in the MRO health check. At
the same time, an action plan is prepared, outlining how to achieve all the prerequisites for
implementing the integrated MRO concept.
When defining the action plan, it is essential to
classify MRO services into critical and non-critical
manufacturing operations, and to differentiate
between internal and external services according
to their value-add (see figure 4). This ensures availability and quality of services for critical operations, and cost-savings for non-critical operations.
Step three is implementation, where responsibilities are assigned and operational targets are
agreed upon. Here a program-management office

External value-add

Focus on
cost savings

Source: A.T. Kearney analysis

is essential to success, with senior management

oversight to monitor and track implementation
progress, measure cost savings and quickly resolve
barriers. Some of the most common barriers
to overcome include an inability to fulfill OEM
specifications and warranties, excessive dependency on key suppliers, resistance to switching
suppliers (after spending years building supplier
relationships it is difficult to break them), and
a general fear-of-risk inherent in many internal
maintenance departments. For the latter two barriers, resistance to new suppliers can be alleviated
through purchase-cost reductions and reducing
the total number of suppliers to be managed;
mollifying the risk averse can be accomplished by
improving MRO services for critical operations.
In the end, getting past these barriers is well worth
mro on the move

A.T. Kearney

the effortcompanies have reduced MRO costs

by up to 15 percent per year for parts, services and
processes using this transformation model.

North America: A Step Ahead

Integrated MRO service provider concepts are
more mature in North America than in European
markets. The North America industry has always

We think the top providers in

North America are excellent
examples of what European
integrated MRO providers
could become.
been more competitive and cost-sensitive; the
economic downturn intensified their aggressive
pricing strategies to gain (and retain) business.
Many integrated MRO service providers are getting parts and operating materials from lowercost countries, and some are expanding into new
products and services. Manufacturers are contracting with these suppliers for various capabilities, including sourcing, procurement, logistics,
reporting, invoicing and payment for all parts
and services.
Integrated MRO providers in North America
manage their customers manufacturing complexity for plants both within and outside their borders improving their processes, cost savings
and delivery capabilities on an international level.
We think the top providers in North America are
excellent examples of what European integrated
6

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A.T. Kearney

MRO providers could become. What sets these

North America leaders apart? They:
Have strong account management capabilities,
which are used to better serve their customers
in North America and, increasingly, outside
North America.
Leverage pricing and availability of local suppliers, then develop a solid supply chain to expand
coverage across plants and geographic
regions.
Build close relationships with a large
number of manufacturers and are
nimble enough to leverage their tech nical expertise as necessary.
Make seamless interactions with enter prise resource planning (ERP) and
procurement systems and invest time
and resources to connect online with
their customers.
Develop strong relationships with
low-cost country supply sources, thus
addressing customers demands for
less expensive standardized parts and operating materials.
Provide transparency into their MRO spend and
use all relevant tools to optimize inventories.

Delivering on Customers Requirements

What do customers want? In which areas do MRO

service providers need to do their homework and
come up with correct answers? Cost savings, of
course. Customers want to know in which MRO
categories and processes the integrated MRO service provider can help them cut costs. They want
assurance that quality and delivery are key capabilities and that their plants can be served on a global
scale with common standards. With MRO on the
move, those that offer the right answers in all
areascosts, quality, delivery and global reach
will be in the best position for success.

Authors
Martin Haubensak is a partner in the automotive practice. Based in the Dusseldorf office, he can be reached
at martin.haubensak@atkearney.com.
Peter Wessmann is a partner in the operations practice. Based in the Dusseldorf office, he can be reached
at peter.wessmann@atkearney.com.
David Lamb is a principal in the automotive practice. Based in the Detroit office, he can be reached
at david.lamb@atkearney.com.
Stephen Mickelson is a principal in the automotive practice. Based in the Detroit office, he can be reached
at stephen.mickelson@atkearney.com.
Andreas Graef is a consultant in the Munich office. He can be reached at andreas.graef@atkearney.com.

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A.T. Kearney is a global management consulting firm that uses strategic

insight, tailored solutions and a collaborative working style to help clients
achieve sustainable results. Since 1926, we have been trusted advisors on
CEO-agenda issues to the worlds leading corporations across all major
industries. A.T. Kearneys offices are located in major business centers
in 38 countries.

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