The Economics of MRO Spare Parts Management

"How well are you managing your Hardware Store?" - Terrence O'Hanlon

This morning I am delivering the Keynote address for the MRO Supply Matters Conference in Houston Texas. This event is growing in importance and offers an important opportunity to create crucial conversations that affect long-term Reliability and enhance Asset Lifecycle Management.

Why does the MRO Supply Chain matter?

Annual MRO Spare Parts Spending (USA 2019–2024)

The U.S. market for Maintenance, Repair, and Operations (MRO) spare parts is substantial, on the order of tens of billions of dollars per year. It experienced modest growth overall from 2019 through 2024, with a dip in 2020 due to the pandemic and a rebound in subsequent years. By 2023, annual MRO spares spend in the U.S. was approximately $89.5 billion, up from the mid-$80 billions in 2019. For 2024, the U.S. MRO spare parts market is estimated around $91–92 billion

Same-Year Usage of MRO Spares

One striking aspect of MRO inventory is low turnover – only a small fraction of spare parts purchased in a year are actually used in that same year. Studies indicate most organizations utilize just 8–10% of their MRO spare parts inventory annually. In other words, ≈90% of spares remain on the shelf past the year of purchase. This aligns with analyses showing that 30–40% of MRO items see no consumption in a given year, and the majority of parts have very slow usage rates. The need for safety stock and unpredictable failure rates means many spares sit in inventory for long periods. Low annual usage percentages highlight the slow-turn, “just-in-case” nature of MRO stock – most parts are held in reserve and not immediately consumed. While this ensures availability for emergencies, it also leads to bloated inventories and capital tied up in seldom-used items.

≈90% of spares remain on the shelf past the year of purchase

Annual Carrying Costs of MRO Spare Inventory

Maintaining a large MRO spare parts inventory carries significant financial and operational costs. These “holding costs” include:

• Cost of Capital: Money tied up in spares could be used elsewhere; if financed by debt, interest is incurred. This opportunity cost is often one of the largest components
• Storage & Handling: Warehousing space, utilities (lighting, climate control), and labor to manage the stock. These add ongoing expenses for every item sitting in the storeroom
• Service Costs (Insurance & Taxes): Many companies must insure their inventory against loss, and in some jurisdictions pay property taxes on inventory value
• Depreciation & Obsolescence: Spare parts can degrade, expire, or become technologically obsolete over time. This reducing value (depreciation) and risk of obsolescence is a real cost – essentially the inventory “going bad” if not used

All told, carrying MRO inventory is expensive. Industry benchmarks show annual holding costs typically run about 20–30% of the inventory’s value. For example, keeping $1 million of spare parts on hand might incur $200k–$300k per year in combined storage, insurance, taxes, capital cost, and write-down of aged stock. These carrying costs directly erode profitability if inventories are larger than needed. In essence, holding MRO spares is not free – companies pay a substantial “inventory tax” in the form of tied-up cash and added overhead to maintain these parts year after year.

Tax and Accounting Note: In addition to operational costs, there are accounting considerations. Inventory is usually carried at cost on balance sheets; excessive stock may trigger write-downs (see below) or require reserving for obsolescence. Certain spare parts classified as capital spares might be depreciated, and inventory values can affect a company’s taxable income. Furthermore, some U.S. states levy personal property tax on business inventories, effectively taxing companies for holding large MRO stocks. All these factors make it financially prudent to optimize spare inventory levels.

Write-Offs from Obsolescence and Damage

A large portion of MRO spare parts never get used and eventually must be written off. Industry analyses find that, on average, roughly 15% of MRO inventory is truly obsolete – parts that are no longer usable or needed. In many organizations, 20–30% of inventory is obsolete at any given time, and ultimately most of those obsolete spares will be written off as a loss. This represents a huge waste of invested capital.

20–30% of inventory is obsolete at any given time

Obsolescence can occur due to equipment retirements, engineering changes (old spare no longer fits new design), shelf-life expiration, or simply over-purchasing of parts that never get demanded. Such stock may sit for years and then be scrapped or sold for pennies on the dollar. In addition, physical deterioration plays a role – without proper care, parts can rust, corrode, or get damaged in storage. It’s estimated that poor storage practices can lead to 5–10% of inventory value being written off annually due to spoilage or damage.

Financial Impact: These write-offs directly hit the bottom line. A company might literally throw away millions in spare parts each year. Aside from the lost value, there’s a carrying cost paid on those parts during all the years they sat in the warehouse. This is why best-in-class maintenance organizations strive to minimize obsolete and excess stock. World-class operations keep slow-moving and obsolete parts to ~10% of their inventory or less. By contrast, an under-managed storeroom can accumulate over 50% inactive stock, which eventually results in large periodic write-offs. Improving forecasting, standardizing equipment, and periodic inventory audits can help identify surplus or aging items so they can be redeployed or sold before they become total write-offs.

Key Challenges in MRO Spares Management

Managing MRO spare parts effectively is notoriously difficult due to several persistent challenges:

• Supply Chain Disruptions: Recent years have exposed how fragile MRO supply chains can be. Events like the COVID-19 pandemic caused supplier shutdowns and logistics delays that made critical spares hard to get on time
• Overstocking (Inventory Bloat): To avoid downtime, many companies overcompensate and overstock MRO parts “just in case.” Over years, this leads to bloated storerooms filled with excess and duplicate items. Inactive inventory averages 50–60% of MRO stock at many sites
• Understocking & Stockouts: The flip side of the coin is running out of a needed spare – and the cost of understocking can be even higher (unplanned downtime, lost production). Striking the balance is difficult. Many organizations actually experience both problems: they have too much of many non-critical parts, yet still suffer stockouts on critical spares when an unexpected failure hits
• Data and Visibility Issues: MRO inventory management frequently suffers from fragmented, poor-quality data. Spare parts data may be spread across ERP, EAM, procurement, and maintenance systems that don’t sync well
• Digital Transformation & Skills: The digitization of MRO is both an opportunity and a challenge. Technologies like IoT sensors for condition monitoring, predictive analytics for parts usage, and advanced inventory optimization software promise more efficient MRO management

MRO spare parts management requires balancing act between availability and efficiency

In summary, MRO spare parts management requires balancing act between availability and efficiency. Companies must navigate external challenges (supply chain volatility) and internal challenges (data silos, outdated practices) to ensure the right parts are available at the right time without sinking excessive cost into inventory. Leading organizations are addressing these issues through better analytics, cross-functional strategies (connecting maintenance, procurement, and supply chain teams), and leveraging digital tools to optimize inventory levels. By tackling overstocking and understocking problems and investing in supply chain resilience and data management, firms can significantly reduce MRO costs while improving reliability of operations.

AI is Transforming MRO & Supply Chain – Are You Ready?

In today’s fast-paced industrial landscape, AI is revolutionizing Maintenance, Repair, and Operations (MRO) & Supply Chain Management—driving efficiency, cost savings, and predictive capabilities like never before.

But how can businesses harness AI effectively?

Join us at this free webinar for an exclusive session where industry experts unveil how AI-driven solutions are reshaping:

?? Asset Management – Smarter maintenance & reliability strategies

?? Procurement – Enhanced decision-making & cost control

?? Inventory Optimization – Reducing waste & improving availability

?? Operational Resilience – Future-proofing against disruptions

Don’t miss this opportunity to gain expert insights and stay ahead in the AI-powered future of asset management!

Register here - https://hubs.li/Q0379zBz0

Webinars not your thing? Please join us at the RELIABILITY Conference, April 29-May 1, 2025. More details here: https://web.cvent.com/event/941a6cea-33d6-472c-a0bf-32983d7b328a/summary

See you in Seattle!