Article 18 Nov 2025

Improving margins in the mining supply chain through effective inventory management

Whether you’re an owner, operator, or mining services contractor, maximising efficiency and profitability is key. There is an opportunity to unlock hidden cash from the materials in your supply chain.

Regardless of whether your fleet includes Caterpillar, Hitachi, Liebherr, or Komatsu equipment, or if you’ve adopted a mixed OEM strategy tailored to your business needs, the same principles will apply. 

Whether you own, lease, or hire the T 284’s, 830’s, 777’s, or D10’s, there’s room for improvement by optimising inventory and the way you manage materials.

Whether you hold $50m or $500m in inventory, you can improve your EBIT (Earnings Before Interest and Tax) performance by maximising value from your materials, including components, spare parts, consumables and ground engaging tools (GET).

A reduction of $30m in inventory holdings, or an expense free realisation of $10m to the balance sheet can go a long way to delivering enhanced value.

Uncovering the hidden cost of poor materials management in mining

Mining companies in Australia often struggle with planning and managing materials effectively, resulting in margin leakage. This impacts financial performance and shareholder value.

Excessive inventory holdings can tie up working capital at a rate of 10-12% annually, making funds unavailable for other strategic investments. Additionally, high levels of non-productive materials often end up gathering rust and dust at sites, only to be written off as obsolete in subsequent periods. This not only wastes resources but also masks the true financial health of operations.

These problems are compounded by high levels of unused materials that are expensed but not accounted for in inventory, remaining invisible to balance sheets and escaping financial oversight. Meanwhile, stock-outs due to part unavailability lose precious operational hours, directly impacting mine site productivity. Knock-on effects from this, such as the wrong parts being fitted to machinery, can lead to premature failures and even more critically, health, safety, and environmental (HSE) issues.

Finally, inefficient logistics networks and high freight costs, including urgent freight movements, drain finances unnecessarily. Poor contractual agreements and above-market rates mean organisations miss opportunities for cost reduction, resulting in an inability to effectively manage OEM and aftermarket parts suppliers to deliver value.

Addressing Root Causes for Materials Margin Leakage

To effectively combat these challenges, it is essential to identify and permanently resolve the root causes of materials margin leakage:

Assets and Maintenance Strategy

An immature capital asset and spare parts strategy, coupled with incomplete or outdated Bills of Materials, hinder effective materials management. The misalignment of inventory with planned maintenance activities can impact operations resulting in downtime. This inability to accurately link materials to specific assets creates confusion and an accumulation of inventory.

Cross-Functional Collaboration

A lack of collaboration between maintenance, inventory, and procurement teams can result in high levels of reactive maintenance. The lack of meaningful planning and inventory KPIs and metrics hinder data driven and predictive decision-making. This, coupled with low operational discipline in warehouse and inventory tasks, particularly in staging, kitting, and returns, leads to unnecessary or incorrect buying and stock out risk. Misaligned values can result in behaviors that prioritise ordering new materials over utilising existing inventory.

Systems and data

Incomplete material master data, and a poor understanding of material profiles, sources of supply, dimensions, pricing, and storage conditions create a data deficit that undermines strategic decision-making. The lack of supply chain integration, including track and trace, warehouse automation, and scanning, further compounds this problem. Inadequate controls on maintenance and purchase orders allows free text or non-catalogue materials to be constantly purchased, weakening financial discipline. Core business systems, such as ERP, Maintenance, Inventory, and Procurement, fail to support effective execution of process and visibility of activities.

Inventory and Supply Capability

Poor MRP and replenishment settings can overlook criticality and actual lead times based on maintenance demand signals, which can damage inventory management capabilities. Low collaboration with suppliers to incorporate alternative inventory models, such as Vendor Managed Inventory (VMI) and Consignment Stock, restricts flexibility and innovation. Additionally, outdated contracts and pricing that are not synchronised with material master data creates manual work and savings leakage.

By addressing these challenges, mining companies can greatly improve their materials management, saving money, and boosting performance. Through strategic alignment and cross-functional collaboration, coupled with robust systems and data integration, organisations can reclaim lost value and improve their competitive position in the market.

Client Snapshot #1

Our client designs, manufactures, and supplies processing equipment, wear parts, and attachments for the global quarrying, minerals extraction, and processing industries.

As part of a global initiative to reduce working capital, an inventory reduction program was launched in Australia. An initial inventory health check revealed opportunities to improve parts demand forecasting and to implement tiered service levels across both products and customer segments. The ERP system was subsequently updated with revised planning parameters and safety stock settings, and all new make, buy, and move orders were aligned to the new standards.

A significant volume of slow-moving and obsolete inventory was also identified. A senior cross-functional team was established to manage its profitable disposal and to implement controls to prevent recurrence. To support the transition, a comprehensive change management program ensured full adoption of the new processes.

After six months, inventory value was reduced by 25% (~ $20m AUD) without any negative impact on product availability or lead times.

Client Snapshot #2

Our client delivers world-class mining services across its Australian operations including open-cut and underground projects. With significant increases in inventory holdings in the past, we were engaged to sustainably reduce levels in order to be able to deliver in year savings and deploy capital elsewhere.

Over a 10-week period, our team partnered with maintenance operations, supply and inventory teams to perform a comprehensive ABC / XYZ categorisation to inform updated stock-holding parameters that were implemented, reducing inventory levels across the network by ~$10m AUD whilst also improving stock-out risk.

This initial work led to additional improvement programs including the run-down of slow-moving and obsolete materials, as well as the incorporation of new supply chain fulfilment models.

Argon & Co’s approach to overcoming materials margin leakage

With decades spent serving the Australian mining community across Tier 1, Tier 2 and Contract Mining, we bring the best of Argon & Co’s capabilities to bear across Procurement, Inventory, Logistics and Operational Excellence for our clients.

Our results driven approach brings the sharpest functional and technical depth to eliminate materials’ margin leakage. This includes:

Rapid Opportunity and ABC/XYZ Analysis: Empowered by our IRIS AI Materials Intelligence offering, we identify and prioritise areas ripe for improvement, ensuring quick and effective action.
Best Practice OEM Commercial Accelerators and Market Insights: Through cutting-edge process enhancements and valuable market insights, we enable clients to achieve operational excellence and maintain a competitive edge.
Deep Cost Reduction Experience: Our commercial understanding of OEM and aftermarket parts suppliers allows us to drive significant cost reductions, optimizing procurement strategies and supplier relationships.
Mastery of Core Functional and Technical Processes: We excel in inventory, procurement, maintenance, and production processes, ensuring seamless integration and execution across all operational facets.
Best-in-Class Operational Transformation Thought Leadership: Our forward-thinking Industry 5.0 approach and industry-leading expertise guide clients in navigating complex transformation challenges, laying the groundwork for sustained success.
A Commitment to Results: Above all, we are steadfast in our dedication to delivering real change, fostering long-term value and performance improvement for our clients.

Don’t let inefficiencies erode your performance. Discover how Argon & Co can help you build control and visibility, delivering value from your materials strategy – reach out today.