The Warehouse Truth

Inventory management is one of those topics too many people want to talk about in power generation. It can keep meetings and committees busy for hours and conveniently justify spending, which is precisely why it quietly destroys value when it is done badly.

When a power plant is presented to me as “operationally under control,” the presentation usually comes with H&S statistics (that by now everyone has learned how to mystify), availability figures, heat rate, and a good assortment of KPIs on a colourful dashboard. The other thing worth looking at is the warehouse. There you find all possible combinations: shelves full of parts that were ordered “just in case,” critical spares that are missing because procurement was postponed to protect cash, components that quietly expired, corroded, or became obsolete while everyone was busy arguing about budgets.

In theory, the rules of inventory are simple: keep what you need to run, nothing more, nothing less. Set reorder levels in the ERP, and move on. In practice, it becomes a proxy for every unresolved tension in a power plant. Engineering wants redundancy because failure is unacceptable. Operations want availability because penalties are real. Finance wants cash because debt service does not wait. Procurement wants volume discounts because unit prices look good on slides.

Thermal plants make this even more uncomfortable. Lead times are long, OEMs change part numbers, engines get upgraded, control systems drift away from their original configuration, and suddenly the spares sitting on your shelves are only good for auditors and for elaborate inventory-counting exercises. Inventory turns into a museum of past assumptions, where each item represents a decision that once felt reasonable and was never revisited.

Inventory management quickly becomes expensive storage rather than operational resilience, surrounded by complex discussions about what is a critical spare, what counts as safety stock, what qualifies as a swing set, and how all of this should be valued on the books, recorded in the ERP, and described in a procedure to be shown at the next ISO-something certification. 

 If your inventory book value increases year on year, you are probably not doing everything right. If you have expensive spare parts that have been sitting on shelves for ten years or more, there are assumptions that deserve to be revisited.

When a plant claims excellence while its warehouse tells a different story, the warehouse is usually telling the truth.

Well-run plants argue about spares; they revisit assumptions, because the supply chain is affected not only by steel prices, but also by a new Director of Customs or a new compliance officer with bright ideas. Operations teams decide which failures they are willing to live with and which ones they are not, and they price those decisions explicitly. They understand that cash tied up in inventory is not safety, it is a trade-off, and trade-offs demand ownership.

I am curious how others see this. In your experience, where does inventory genuinely protect value, and where does it quietly mask poor decisions upstream? And to asset managers: do you measure, year after year, the value destroyed by overstocking parts or consumables that expire, without hiding behind depreciation tricks?