Managing manufacturing inventory is like walking a tightrope. When you get it right, you strike a perfect balance between supply and demand, keeping costs low and minimizing waste. But if things go sideways, you might be drowning in excess inventory or scrambling for raw materials to meet orders — neither is good for your business.
Inventory management in manufacturing is all about keeping tabs on your raw materials, work-in-progress, and finished products. It helps you know exactly what you have and how much you can produce at any moment. When you throw in additional challenges that come from outside your company, like supply chain disruptions or vendor issues, it can get pretty complicated, but, thankfully, tools and tech make it easier.
Key Elements of an Inventory Plan
An inventory management plan has a few important elements that you'll need to develop and monitor on a regular basis. Keeping an eye on them helps you stay ahead of demand while also cutting down on operating and overhead costs.
Forecast Demand
First, you’ll need to forecast how much demand there is based on past data, economic trends, and incoming orders. For example, a TV manufacturer knows they have to ramp up production several months before a big game, as many consumers upgrade at that time. Keeping tabs on demand helps you stay ahead and know exactly when, where, and how much to order.
Set Safety Stock Levels
Next, you’ll need to set safety stock levels so you know how much inventory and raw materials you need to have on hand at any given time to keep production going. In the TV example, the manufacturer will need to establish the proper number of components they need to meet the increased demand for product. This level will change as the year goes on, peaking just before the big game. If stock dips below these levels, they’ll need to order more or risk stopping production.
Monitor Inventory Turnover
You’ll also need to monitor inventory turnover to ensure you have the right level to meet both production and customer demands. It’s about finding the balance between the raw materials to fuel production and finished inventory to meet customer needs.
Manage Costs
And, of course, you also need to manage inventory costs and cash flow. You don’t want to spend too much on raw materials or create unnecessary downtime due to a lack of funds. This can be difficult when demand requires that you stock up on materials to meet demand, requiring a heavy cash outlay. It may be more beneficial to slowly purchase more raw materials so you can keep the cash you need to pay production workers.
As you go through your inventory plan and gather data, you'll learn more about the ups and downs of your production cycle. You can then use this information to make changes to your plan. Adaptability is crucial to keeping your business afloat and maintaining steady production, even during slow periods.
Four Best Practices for Managing Manufacturing Inventory
Managing inventory is an ongoing process that doesn’t always run smoothly. To help improve your process, here are some best practices.
Develop Clear Inventory Policies
Personnel need to know exactly how much material or product to have on hand, when to order more, and who orders it.
Invest in an Inventory Tracking System
This system helps you track raw materials, work-in-progress, and finished products so you know exactly how much you have at any time. It also saves time compared to performing a manual inventory or using a spreadsheet.
Train Your Employees on Inventory Management
The more your team knows about proper inventory management, they can provide additional insight to help you streamline your operations. Make sure they understand the tools and technology you’re using, why you’re using them, and how to use them correctly.
Audit Your Inventory Practices Regularly
Use these audits to see how well your inventory practices are working and how they impact customer satisfaction, product quality, and profitability. If you spot any areas that need tweaking, this is the time to make changes!
Benefits of Effective Inventory Management
Managing your inventory effectively leads to multiple business benefits. First, accurate inventory and demand projections help you avoid overspending on materials, supplies, and storage space and also improve customer satisfaction, as orders are delivered on time because you have the right amount of raw materials to meet the need.
Production efficiency is also improved because stoppages due to a lack of raw materials or too much inventory in storage are reduced or eliminated.
Finally, accurate tracking improves the accuracy of your projections, meaning you're better prepared for changes in the future.
Tech Solutions to Keep Your Inventory Running Smoothly
Manufacturing inventory management involves a lot of data, and technology can help make collecting and analyzing it easier and faster. Let's talk about a few tools that can help save time and money when you’re setting up your inventory management system.
Enterprise Resource Planning Software
Enterprise resource planning (ERP) software is like the Swiss Army knife for managing your whole business. It takes care of everything from finances and human resources to supply chain and inventory. By gathering data from throughout the company, it helps you generate reports and analyses that can streamline your operations.
Inventory Management Software
With inventory management software, you can easily track your raw materials, supplies, and completed products so you always know what’s in stock. It also gives you valuable insights based on real-time data, helping you make better decisions about your inventory.
Radio Frequency Identification
Using technology like radio frequency identification (RFID) can give you a clearer picture of the flow of materials and workers throughout the production process. It uses radio frequencies to track people or objects, so you can quickly spot any slowdowns or bottlenecks, and it gives you a real-time view of your inventory.
Simplify Your Processes with the Right Tech
We get it — managing inventory in manufacturing can be pretty complicated. But with the right technology and software, it doesn’t have to be a hassle! If you’re still relying on spreadsheets and manual counting, it might be time for an upgrade. The data and insights you can get from a modern system can help boost efficiency, cut costs, and increase profitability, making it a solid win for your business.
