The Most Costly Inventory

Engineering spares are a business’s insurance policy.

An insurance policy against breakdown.
An insurance policy to protect asset life.
An insurance policy to keep producing and servicing customers.

But most businesses don’t manage their insurance policy properly.

What does one hour of downtime cost your factory?

Across manufacturing, estimates typically range from $5,000 to $50,000 per hour, depending on industry and scale.

Idle labour.
Lost throughput.
Service erosion.
Expedite freight.
Customer penalties.

The number escalates quickly.

And yet, I regularly walk into spare parts stores that are full, yet unprotected.

An Engineering Manager once said to me:

“We’ve got so much inventory… but we never have the right thing.”

In one national food processor I worked with:

• Over 7,000 stocked spare parts

• Only six parts were used every single month

• Just 25% of parts were used in a 12-month period

• Three quarters of the inventory sat idle for a year.

That highlights the scale of investment many businesses make in spare parts.

The real question is whether those premiums are worth paying.

Industry benchmarks estimate total inventory carrying costs at 20 - 30% of inventory value annually.

So a $2 million spare parts store is quietly costing $400,000 to $600,000 per year before a single part is used.

Maintenance research also shows 10 - 30% of MRO inventory is excess or obsolete, while fewer than 20% of items are truly critical to production throughput.

So, if that $2 million store has 30% in excess, that’s $600,000 of tied up working capital.

At 20 - 30% carrying cost, that equates to $120,000 - $180,000 per year in ongoing costs, not protecting anything.

Most sites are over-insured in the wrong places and under-insured where it matters most.

Then there’s engineer time.

If one engineer spends 30 minutes per day searching for parts, that's 130 hours per year.

Now, multiply that across a team. Factor in the labour cost and downtime impact.

That’s not inconvenience.

That’s cost and it compounds.

Across engineering stores, I consistently see:

• Static Min/Max quantities set years ago

• Hundreds of parts below minimum with no replenishment trigger

• No criticality modelling for high-value, low-usage items

• Parts missing bin locations

• No governance around additions and deletions

This is a process and discipline gap.

Let's take this a step further, spare parts inventory almost always grows over time.

New lines.
Alternative suppliers.
OEM reversions.
Scope expansion.

Rarely anything is ever removed.

The longer a part sits, the greater the risk of obsolescence, shrinkage, corrosion and ongoing carrying costs.

Growing inventory on top of shaky foundations is a costly exercise.

Insurance only works when it’s structured.

Over-insuring is expensive.
Under-insuring is dangerous.

Most spare parts rooms are doing both.

Engineering spares should be treated as structured risk management, not maintenance clutter.

That means:

• Asset criticality ranking

   

• Risk-based stocking logic

• Dynamic min/max levels

• Clear replenishment signals

• Governance over SKU lifecycle

So, if downtime costs tens of thousands per hour… and carrying costs consume 20 - 30% annually… is your spare parts store optimised for protection or just accumulation?

Because there’s a real difference between having stock and having coverage.