Asset-intensive organisations, including mining, oil & gas, utilities, heavy manufacturing and infrastructure, carry significant inventory in spare parts, consumables and maintenance supplies. This inventory is essential to keep assets operating reliably, but they also represent significant working capital tied up on the balance sheet.
When inventory is mismanaged, whether through overstocking, poor data, or misalignment with maintenance needs, organisations can lock up large amounts of working capital whilst at the same time face increased risk of asset downtime. The challenge is therefore not simply to hold less inventory, but to hold the right inventory, in the right place, at the right time – freeing up capital while maintaining uptime and reliability.
The Working Capital Dilemma
Inventory is one of the largest components of working capital for heavy industry. Yet, organisations often have excessive stock on hand while still experiencing critical stock-outs when key parts are needed most. This paradox highlights a deeper issue: inventory optimisation isn’t just about reducing totals. It’s about alignment with operational demand and asset strategy.
Excessive inventory ties up capital at significant cost. Industry data shows that carrying costs, encompassing warehousing, insurance, depreciation, and obsolescence risk, can amount to 20–30% of total inventory value annually, draining profits and locking up cash that could be deployed elsewhere.
Conversely, stock-outs disrupt maintenance schedules, reduce asset availability and often trigger expensive emergency procurement and expedited freight, further eroding margins.
Common Root Causes of Sub-Optimal Inventory
Asset-intensive organisations face several recurring challenges when it comes to inventory:
- Misaligned stock and maintenance planning — Inventory strategies aren’t linked to actual maintenance schedules or asset criticality, leading to both redundancy and gaps.
- Poor master data quality — Inaccurate material descriptions, duplicated records, and inconsistent nomenclature undermine forecasting and planning systems.
- Siloed organisational structures — Procurement, inventory and maintenance functions often operate independently, resulting in inconsistent prioritisation and accountability.
- Reactive replenishment and planning — Lack of proactive demand forecasting means organisations chase stock after the fact, instead of anticipating needs based on maintenance plans and asset wear patterns.
These gaps compound over time, locking capital in low-value inventory and increasing the likelihood of unplanned work and downtime.
Criticality-Based Inventory Management: Reducing Risk, Freeing Capital
A powerful way to reduce inventory while maintaining uptime is to adopt criticality-based inventory management. Rather than treating all SKUs alike, items are classified not just by value or usage, but by their impact on operations if they become unavailable.
How Classification Drives Optimisation
- High-criticality/low-volume parts — Essential to uptime; stock levels tightly controlled and monitored.
- High-volume/low-criticality items — Managed with efficient replenishment but without excessive safety stock.
- Low-criticality/low-volume inventory — Candidates for reduction or alternate fulfilment models.
Hybrid approaches (e.g., ABC-VED analysis) help organisations focus capital on parts that matter most to reliability, ensuring safety and uptime without tying up unnecessary stock.
This approach supports smarter safety stock settings, driven by actual maintenance schedules and lead-time variability, not arbitrary days-on-hand rules.
Integrating Inventory with Maintenance and Operations
Inventory optimisation shouldn’t be insulated from maintenance strategy, it must be integrated with asset-level planning.
When planning, maintenance teams should partner with supply chain and procurement to:
- Align maintenance work orders and planned outages with inventory levels.
- Use predictive and preventive asset data to estimate true consumption.
- Remap bills of material (BOMs) for assets so planned maintenance genuinely reflects inventory demand.
This integration reduces reliance on emergency orders and increases confidence that necessary parts will be on hand when needed. It also enables inventory systems (ERP, CMMS/EAM) to operate with consistent, high-quality data, improving planning outcomes.
Optimisation Beyond Reduction: Smarter Policies and Collaboration
Inventory optimisation isn’t merely about cutting levels; it involves better decision-making, governance, and cross-functional collaboration:
- Master Data Management — Cleansing and standardising material records improves forecasting accuracy and reduces duplicate purchases.
- Demand-Driven Replenishment — Triggering orders based on actual usage patterns rather than fixed periodic cycles.
- Supplier Collaboration Models — Vendor-managed inventory (VMI) and consignment stock can reduce internal carrying costs while improving service levels.
- Shared KPIs Across Functions — Aligning finance, operations, maintenance, and procurement around metrics such as service level, stock-out rates, and working-capital efficiency.
In capital-intensive environments, this shift from tactical, siloed behaviour to strategic inventory governance is a key enabler of both financial and operational performance.
Delivering Sustainable Cash and Resilience
When executed well, inventory optimisation programs can deliver measurable financial results:
- Talented teams have reduced inventory holdings by 15–30% while maintaining or improving service levels.
- Reductions of tens of millions in inventory value can materially improve free cash flow, strengthen balance sheets, and unlock funds for strategic growth or debt reduction.
Importantly, this helps organisations manage cash more effectively in volatile markets, balancing liquidity pressures with uptime commitments.
Conclusion
- Optimising inventory in heavy and asset-intensive industries is not about simple stock cuts. It’s about taking capital out of unnecessary inventory without risking uptime, through:
- Better classification and criticality-based strategies
- Stronger alignment between inventory, maintenance and operations
- Improved data quality and cross-functional governance
- Smarter replenishment and supplier collaboration
Done correctly, inventory optimisation becomes a powerful tool to unlock working capital, protect operational reliability, and strengthen organisational resilience in competitive and volatile market environments.
How Argon & Co helps
Argon & Co routinely delivers large procurement improvement and cost reduction programs to support heavy industry companies to protect their and strengthen their margins – we help clients find the money, get the money, and keep the money.
Our approach combines deep operational understanding with commercial discipline, ensuring cost reduction does not come at the expense of reliability, safety, or performance.
Contact us today to discuss how a targeted procurement health check could unlock immediate savings and build lasting margin resilience.
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Daniel Jackson
Associate Partner, Australia
