Throughout my 15 years managing inventory, procurement, and warehouse operations, particularly in mining and heavy equipment industries, I have learned that tracking inventory performance is more than just reporting numbers — it is about understanding how your assets support the heart of the business.
One of the key metrics every supply chain professional must master is Inventory Value and Inventory Turnover.
Especially in industries where capital equipment and spare parts are expensive and complex, like mining, keeping a strong grip on inventory performance directly impacts profitability and operational continuity.
Let me walk you through how we approach these calculations in heavy equipment operations.
1. What is Inventory Value?
In simple terms, Inventory Value refers to the total financial worth of all the items held in stock at a given point in time. In heavy equipment industries, this includes:
- Spare parts (engines, hydraulic components, undercarriage parts, filters)
- Lubricants and consumables,
- Tools and attachments,
- Special maintenance kits,
- Obsolete or slow-moving inventory (if not yet written off).
How to Calculate Inventory Value:
The basic formula is:
Inventory Value = Quantity on Hand × Unit Cost
Each item’s unit cost should ideally include not just the purchase price but also additional landed costs such as:
- Shipping and freight
- Customs duties
- Insurance
- Handling fees.
In mining operations, accurate landed cost calculation is critical because import taxes and logistics fees often make up a significant portion of the final inventory value.
Example:
If you have 10 hydraulic pumps in stock, each costing USD 2,000 (including freight and import duty), then the inventory value for hydraulic pumps is:
10 × USD 2,000 = USD 20,000
Repeat this calculation for every major stock group to get your total inventory value.
2. What is Inventory Turnover?
Inventory Turnover measures how many times inventory is sold, consumed, or replaced over a specific period (typically one year).
In heavy industries, a high turnover rate usually indicates efficient inventory management, while a low turnover may suggest overstocking, poor forecasting, or procurement inefficiency.
How to Calculate Inventory Turnover:
The classic formula is:
Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory Value
Where:
- COGS represents the total value of materials and parts used or sold during the year.
- Average Inventory Value = (Opening Inventory + Ending Inventory) ÷ 2
Example:
Suppose your spare parts COGS in 2024 was USD 2,000,000.
Your average inventory value (start of year and end of year average) is USD 500,000.
Then:
Inventory Turnover = 2,000,000 ÷ 500,000 = 4 Times
This means your inventory turned over 4 times during the year — or approximately once every three months.
3. Why Inventory Turnover Matters in Mining and Heavy Equipment Operations
A. Cash Flow Management
Holding too much slow-moving inventory locks up working capital that could be invested elsewhere.
B. Operational Readiness
Critical parts must always be available to avoid equipment downtime, but without overstocking expensive items.
C. Warehouse Efficiency
Higher turnover typically means less congestion, better stock rotation, and fewer obsolete parts building up.
In mining, downtime costs are massive. Therefore, balancing the need for critical spare parts availability without inflating inventory cost is an essential skill.
4. Best Practices for Improving Inventory Value and Turnover
1. Criticality-Based Stocking Policies
Always link your inventory strategy to asset criticality, not just consumption speed.
(Some slow-moving items must still be stocked because their absence can stop production.)
2. Fast-Moving vs Slow-Moving Classification
Regularly review and classify inventory based on movement history (e.g., using ABC analysis or Fast-Medium-Slow moving tags).
3. Dynamic Replenishment
Set reorder points and order quantities that adapt to seasonality, project cycles, and equipment maintenance schedules.
4. Supplier Collaboration
Where possible, implement vendor-managed inventory (VMI) or consignment stock on site for non-critical or expensive slow-movers.
5. Regular Stock Audits
Periodic cycle counting and variance analysis can catch problems early and keep the records accurate.
Managing inventory in mining and heavy equipment sectors is not just about minimizing costs — it is about ensuring that the right part is available at the right time, without burdening the company’s cash flow unnecessarily.
By mastering the fundamentals of inventory value and turnover calculation, and applying them strategically, supply chain professionals can become powerful drivers of operational success.
In my experience, those who understand their inventory at a deep level are always the ones who make the biggest difference to the business.
Inventory is not just stock — it is operational resilience waiting to be unlocked.
That’s all from me. I hope you find this valuable and insightful!
“Simplifying Supply Chains, Empowering Teams, Driving Success – Eddy Suryadi”
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Originally posted 2025-04-28 12:00:32.