MRO Inventory Guide: Balance Risk, Cost & Performance
Sep 19, 2025
Learn how to optimize MRO inventory management by balancing risk, cost, and operational performance. Explore strategies, KPIs, and best practices.
Efficient MRO (Maintenance, Repair, and Operations) inventory management is a critical yet often overlooked aspect of successful supply chain operations in industries such as manufacturing, utilities, and e-commerce. Poorly managed MRO inventory can lead to unnecessary costs, operational downtime, and reduced efficiency. However, with the right strategies, businesses can strike a balance between mitigating risk, controlling costs, and optimising performance.
Drawing insights from a detailed discussion led by MRO expert Tim Mlan, this article outlines actionable steps and strategies for professionals looking to enhance MRO inventory management. From improving data governance to aligning stocking strategies with criticality and demand signals, we’ll explore how businesses can achieve greater operational efficiency.
Understanding the Foundations of MRO Inventory Management
MRO inventory management is unique because it deals with materials and equipment critical to maintaining operations but not directly tied to product manufacturing or sales. Items like bearings, motors, spare parts, and consumables require careful oversight to ensure organisations avoid stockouts or surpluses. A successful MRO strategy balances two critical factors:
Risk Mitigation: Preventing downtime by ensuring availability of essential materials.
Cost Control: Minimising excessive inventory costs while maintaining operational readiness.
Tim Mlan emphasised that businesses can achieve this balance by adopting a structured approach, leveraging data-driven decision-making, and fostering collaboration between maintenance, engineering, and supply chain teams.
Key Components of Effective MRO Management
1. Demand Signal Analysis
A strong MRO strategy begins with understanding demand signals - how and when materials are required. Demand can be categorised into:
Planned Demand: Materials needed for scheduled maintenance or projects, typically involving advanced planning.
Unplanned Demand: Materials required urgently for unforeseen breakdowns or repairs.
Measuring the percentage of planned versus unplanned demand is critical for setting stocking strategies. For instance:
High levels of unplanned demand indicate the need for higher inventory levels to mitigate risk.
Businesses with 80% planned maintenance can significantly reduce inventory by stocking only for the unplanned portion.
Actionable Insight: Establish KPIs to monitor planned versus unplanned demand and involve maintenance teams in reviewing these metrics.
2. Criticality Assessment
Determining the criticality of equipment and materials is foundational to MRO inventory management. Critical items are those that, if unavailable, could cause significant downtime or safety risks.
Best Practices:
Use a structured tool or process to assess criticality based on factors such as safety, operational impact, and lead time.
Distinguish between truly critical items and non-essential materials to avoid overstocking.
Ensure critical materials are on contracts, automated for procurement, and preserved appropriately.
Example: One organisation reduced its critical inventory from over 2,600 items to 500 by removing emotional bias and applying systematic criteria.
3. Stock Replenishment Strategies
Stocking decisions must balance risk and cost. Key principles include:
Reorder Point (ROP): Determines the minimum stock level at which new inventory should be ordered. It is calculated based on demand during lead time plus safety stock.
Reorder Quantity (ROQ): Focuses on optimising ordering costs rather than stock levels.
Avoiding Arbitrary Max Levels: Arbitrary "max" levels often lead to inefficiencies. Instead, focus on setting ROPs that align with operational risk.
Pro Tip: In many cases, the minimum and maximum levels may be the same for critical items. This simplifies replenishment and ensures consistency.
4. Preservation of Critical Materials
Critical materials often sit in storage for long periods, making preservation vital to ensure their reliability when needed. For example:
Motors may require periodic checks and maintenance, such as shaft rotations or insulation resistance tests.
Rubberised components, such as belts, often need controlled environments to prevent degradation.
Actionable Insight: Develop preservation plans tailored to critical items and assign maintenance tasks to either internal teams or external contractors.
5. Streamlining Procurement
Procurement efficiency is a key pillar of MRO management. Measuring and managing lead times, automating purchase orders (POs), and minimising free-text orders are essential steps.
Free-Text Orders: High levels of free-text orders bypass inventory controls and create inefficiencies. Reduce reliance on free-text orders by cataloguing materials and incorporating them into the ERP system.
Vendor Collaboration: Work with suppliers to improve lead times, negotiate contracts, or implement vendor-managed inventory (VMI) or consignment stock for non-critical materials.
Example: A utility company reduced lead times from 18 to 3 days by partnering with a supplier to stock essential materials locally.
6. Data Governance and Master Data Management
High-quality data is the foundation for effective MRO management. Ensuring the accuracy of material master data, cataloguing to a taxonomy, and maintaining stock accuracy are critical.
Assign responsibility for data governance within your organisation.
Consistently update material records, particularly after equipment upgrades or changes.
KPIs to Drive MRO Excellence
Tracking key performance indicators (KPIs) provides visibility into the effectiveness of MRO inventory management. Tim Mlan highlighted six essential KPIs for MRO:
Planned Demand Percentage: Tracks what proportion of demand is planned versus unplanned.
Free-Text Orders: Measures the percentage of orders placed outside the inventory system.
Stock Accuracy: Ensures that physical stock matches the records in the system.
Stock Turns: Indicates how efficiently inventory is moving. Aim for 2-3 turns per year for MRO materials.
Purchase Order Automation: Tracks the percentage of POs created automatically to reduce manual workload and costs.
Supplier Delivery Performance (DIFOT): Monitors how well suppliers meet delivery deadlines.
Key Takeaways
Measure Planned vs. Unplanned Demand: Understanding demand signals is critical for setting effective stocking strategies.
Prioritise Criticality: Focus on identifying and properly managing truly critical materials to minimise risk.
Optimise Stock Replenishment: Use reorder point (ROP) and reorder quantity (ROQ) calculations to avoid overstocking and reduce costs.
Preserve Long-Term Spares: Implement preservation plans for critical items to ensure reliability.
Streamline Procurement: Minimise free-text orders, automate POs wherever possible, and work with suppliers to reduce lead times.
Monitor KPIs: Use data-driven KPIs such as stock turns and stock accuracy to guide inventory decisions.
Ensure Data Governance: Assign responsibility for maintaining accurate material master data and updating records.
Final Thoughts
MRO inventory management is a complex balancing act requiring collaboration, data-driven decisions, and regular review of processes. By focusing on risk, cost, and performance, organisations can reduce inefficiencies, prevent downtime, and optimise their operations. Start by aligning your strategies with the principles outlined above and use KPIs to track progress and refine your approach over time. Remember, effective MRO management is not just about managing inventory - it's about enabling your business to operate seamlessly and efficiently.
Source: "MRO Inventory Management Essentials: Balancing Risk, Cost & Performance" - MAINSTREAM Community, YouTube, Aug 25, 2025 - https://www.youtube.com/watch?v=1OHUNoPfMto
Use: Embedded for reference. Brief quotes used for commentary/review.