The working capital hiding on warehouse shelves

Walk through the warehouse of almost any mine, plant or processing site and you will find shelves of spares bought to protect production from failure. Some are essential but many have not moved in years, and among them are duplicates of parts the business already owns, spares nobody can link to equipment, and stock bought for projects long finished. 

To a CFO, all of it appears as one line on the balance sheet, reported by the ERP as though it were a single, reliable number. Within that number often sits slow and potentially obsolete (SLOB) stock, which in heavy industry can easily account for more than half of total MRO inventory value, with nothing in the system to flag it. 

Working out why that stock is there is not something finance can do alone. The causes sit in procurement, maintenance and the warehouse, and in the data connecting them. Technology can only report what those decisions put into it. 

The data problem behind the balance 

The ERP reports what has been recorded, not what is usable, and the gap is largely a data problem. 

Duplicates are common where new items are catalogued by pasting spreadsheet requests straight into the system with no checks, resulting in someone buys what the business already owns. Spares not linked to a bill of materials (BOM) or task list suffer the same fate: no one knows they are in the warehouse, so new stock is ordered. 

SLOB stock is where these failures compound. It lingers in the "too hard basket" because there is no BOM, no consumption history, the supplier no longer exists and no one has time to investigate. Spares bought for capital projects and shutdowns, then never used, are often expensed, invisible and stored in containers. 

Any dashboard, forecast or automation built on this data inherits its flaws, and because new materials are catalogued daily, cleaning up is a discipline, not a one-off project. 

Sensible decisions, poor outcomes 

Procurement negotiates a volume discount and reports a saving. If the business buys several years' supply, however, the saving can be illusory: with a carrying cost of around 20% a year, a part unused for five years has effectively been paid for twice. Lead time matters as much as price, because shorter lead times mean less stock for the same risk. Even competitive tension can backfire: I have seen a site add a second strategic equipment supplier and double the spares needed to support its equipment, to the point that an extra building was required. 

Maintenance, focused on avoiding downtime and rarely accountable for working capital, tends to set conservative minimums, often without knowing lead times, and to label too many parts critical. When everything is critical, nothing is. 

Finance sees the balance growing and imposes a blanket reduction, usually late and in a hurry. Cuts made without the people who rely on the stock break trust, and teams respond by hiding parts in containers or under desks creating 'squirrel stores' which sit outside the system. 

Each function acts rationally but collectively, the business ends up either too much stock, the wrong stock, or stock it cannot find. 

Make stock turns everyone's responsibility 

Stock turns reveal the problem, yet they are usually left to the warehouse team, which decides neither what is bought, what is critical nor how much work is planned. Without turns in everyone's KPIs, no one owns the working-capital consequences. 

Immature heavy-industry operations often have stock turns below one. Put simply, a business holding $100 million of MRO inventory is using less than $100 million of it each year, so at that rate it would take more than twelve months to empty the shelves. World class is three to four turns, and reaching it takes every function pulling together. Procurement should be measured on lowest possible cost and continuous lead-time reduction. Maintenance should run monthly SLOB reviews, link every spare to a BOM or task list and end squirrel stores. The warehouse should hold stock accuracy of 98% or better and operate a closed store. Finance needs an obsolescence provision; without one, the cost falls on maintenance or operations and the stock stays on the balance sheet. 

Separate strategic stock versus avoidable stock 

Not all inventory is waste. Strategic stock is held deliberately because a spare costs less than the failure it prevents. Criticality should set safety stock levels, not decide whether equipment is supported, and long lead times or supply constraints can justify spares even for non-critical equipment. The test is governance: without it, "if this fails it will cost us a fortune" justifies almost anything. 

Avoidable inventory is largely a function of planning. A site with 80% of its maintenance work planned needs far less stock than one that plans only 20%. Sizing inventory around the volume of unplanned work cuts working capital, and maintenance often receives newer parts for the jobs it needs to do. 

Where CFOs can start 

The first priority is to stop the bleeding by strengthening inventory governance: a clear taxonomy, robust cataloguing standards, accurate BOMs, equipment criticality assessments and disciplined material master data processes, with new materials reviewed before they enter the system. 

Next, make MRO performance a shared responsibility. Senior leaders across procurement, maintenance, operations, warehousing and finance should be jointly responsible for stock turns.  

From there, segment the inventory and act first on stock that is not moving, not critical and not on a BOM, where working capital can be released at the lowest operational risk. 

CFOs should also ask: what are our stock turns, does the ERP match what is physically on site, how are new materials reviewed before they are catalogued, and do we have an obsolescence provision? 

The capital tied up on the balance sheet accumulates through thousands of individual decisions about what to buy, stock and keep "just in case". Releasing that capital starts by asking the people behind those decisions a simple question: why is this stock here?