For a moment, let’s channel our inner CFO.
In global enterprises, every functional group influences material outcomes that are magnified every 13 weeks during quarterly business reviews, earnings calls, and board meetings. Sales and Marketing tie revenue generation to business performance. Customer Success reports on customer expansion and retention. Product teams cover innovation and roadmap execution. Finance and Operations address cost structure and productivity.
But in manufacturing businesses, efficient inventory management influences EBITDA and profitability as well. It is an enormous part of an enterprise’s operations. It is definitely a huge chunk of its overall cost structure. Yet many OEMs undermine their key performance metrics with a costly and inefficient model for stocking legacy parts — those items that suppliers discontinue because they’ve become obsolete in rapidly innovating markets but which the OEM must keep on hand to support customers.
It’s a long-standing problem that has been begrudgingly accepted as standard practice. Manufacturers currently have few options other than the standard playbook for stocking legacy, end-of-life parts. They procure large quantities before suppliers phase them out, then manage that inventory for years or decades. If they run short, they commission a new supplier and make another large buy. These practices are no longer viable for manufacturing enterprises that want to maximize top and bottom lines.
As detailed in our first two blog posts, Accio3D was founded to establish a better paradigm for OEMs. Accio3D leverages AI agents to match OEMs with 3D printers who can meet their specs and cost requirements, bypassing excessive inventory costs, tariffs, and traditional shipping. In this post, I dive deeper into the true costs — often unseen or underestimated — of doing business as usual in legacy parts inventory management.
Hyperbole aside, the implications cannot be ignored.
Acknowledging the Status Quo Challenge
Companies have different challenges managing inventories of legacy and end-of-life parts. For example, OEMs that contract with the U.S. Department of Defense have different requirements than manufacturers selling heavy equipment to commercial builders. Regardless, they operate with outdated procurement strategies and inventory management methods that weigh down earnings and valuation for OEMs.
Here’s why:
- This type of inventory does not have asset value. While supporting customers’ repair and maintenance needs is a core obligation and component of brand reputation, legacy parts do not generate revenue like parts and materials for new products.
- It weighs down a company’s balance sheet. Return on assets is a critical ratio used by analysts and investors to assess how efficiently a company operates. When a firm stocks hundreds of millions of dollars in legacy parts, its ROA can decline, giving the impression that it is less efficient than peers and competitors.
- The costs of procuring legacy parts endure long after the supplier’s invoice is paid. Procurement specialists acquire legacy parts that customers need for long-term repair and maintenance. That’s their job, and they’re good at it. Yet they tend to overlook the costs of storing, tracking, managing, and shipping those parts for years or decades.
- Perceived “savings” can evaporate, and costs can multiply with lifetime buys. When an OEM’s procurement team lines up a lifetime buy of legacy parts that is discontinued, they often need a new supplier and expensive factory tooling. To lower their per-unit costs, they may boost the order quantity, which is a safe strategy for keeping parts on hand, but one that multiplies long-term inventory management costs.
These and other inefficiencies in legacy parts inventory management are accepted as a cost of doing business, meeting warranty obligations, and addressing customers’ needs for repair and maintenance on long-lived equipment. The combined effects amount to an enormous waste of time and money.
It doesn’t have to be this way. It shouldn’t be this way.
The Material Effect of Inventory Challenges – And Opportunities — on C Suite Metrics
Imagine you’re in the C-suite conference room of a major OEM in aerospace, automotive, heavy equipment or a similar industry. Your last quarter earnings fell short of expectations. Sell-side analysts are questioning your growth potential and executive management skills. Board members and the largest investors have expressed concern – the undeniable message that the clock is ticking on your tenure.
Now imagine what $500 million in parts and components for aging IT equipment, excavators and combines, or weapons systems looks like materially to the business. Imagine the space it occupies across multiple warehouses globally. The rent. The utilities. The cost of human capital, drones, and robots deployed to track, pick, and ship parts. Marketing may be a big cost center to the business, but at least it spends to produce revenue. Your inventory is a cost center that collects dust for years.
Slimming down that costly stockpile of parts will improve your key performance metrics. So will preventing the production of additional inventory that will sit after it’s obsolete. In the past, 3D printing was only an option in rare cases. With agentic AI, you can source parts in small quantities and ship on demand. The combination of AI agents and human experts reduces the friction between OEMs’ specs and 3D printers’ capabilities.
Together, they pave the way for resilient and agile legacy parts procurement strategies — strategies that do not burden balance sheets like old-school playbooks. Instead, they slash inventory costs and lighten the load on the balance sheet. Such an outcome enables you to show up at the next QBR or board meeting with a better story to tell. Transforming inventory management into an on-demand, cost-efficient operation also enables your CEO and CFO to tell a better story when they sit down for quarterly earnings calls.
Your effort could mean the difference between a quarterly make or a miss, a jump or drop in stock price, and a buy or a sell stock rating from analysts. Applying agentic AI to supply chains and inventory management saves time and money. But it also influences the most critical KPIs your business runs on. Managing inventory is not a back-office function. It can be a business driver.
