Inventory Management Strategies for Manufacturers

Inventory management is more than checking how many products are stacked in your warehouse. This concept covers crucial parts of the manufacturing process, from ordering raw materials, using them, and churning out the finished goods.

Inventory management is of particular importance to manufacturing businesses because it directly affects cash flow, which oils the manufacturing process. After all, if you clear stock from your holding location, you bring in revenue to continue running the operation.

Now, when it comes to inventory management for manufacturers, it’s vital to stay on top of the process to avoid issues such as high storage costs or product expiration.

To avoid these and other production and logistics issues, manufacturers must develop and implement relevant inventory management strategies.

Inventory management is the process of ordering raw materials, then tracking, managing, and storing them and their resultant products.

As a manufacturing operation, you require a considerable amount of raw materials to make your products. Not only that, some products aren’t sent through the line in one go. Instead, partially made products can be momentarily stored and introduced into the line later on to make the final goods.

And as all that happens, you need to know how much of everything is in the business’ possession. By that we mean, how many raw materials, partially completed and fully made items are in stock.

And speaking of stock, this word is usually interchangeably used with ‘inventory.’ However, the main distinction is that inventory covers the entire process, as mentioned earlier. On the other hand, stock is usually finished goods waiting to be moved on to the customer.

Because the manufacturing inventory management process covers the entire product journey, there are various moving parts involved. Consequently, this introduces multiple types of inventory for manufacturers to keep track of.

In a factory, inventory is often composed of:

• Raw materials

• Works-in-progress

• Fully finished products

• Packaging material like cardboard and in-the-box cushions

• Maintenance, repair, and operation (MRO) inventory like toolkits, consumables and supplies.

Fledgling operations might use basic strategies to keep on top of their inventory. However, as the business grows, various manufacturing inventory management strategies come into play.

Just-in-time (JIT) inventory management

This strategy is ideal for businesses that prefer to keep as little stock as possible before reordering to go on a production run. The JIT strategy involves ordering raw materials from suppliers only when there is demand for a product.

As such, a manufacturing business can save on warehousing costs from having excess inventory. Further, the operation saves on the production costs it would have expended on making the extra finished items.

First in, First out (FIFO) method

First In, First Out is based on manufacturers who operate a continuous production line. This inventory management style allows them to move the old stock before selling the new items fresh off the line.

A similar strategy to this LIFO - Last in, First out. This method focuses on selling the most recent products first because they cost more to make. Therefore, the business focuses on recouping the relatively more significant investment into the more recent creations.

ABC inventory analysis

With this strategy, a manufacturing business sorts and analyzes its products to determine their share of the company’s income.

A stands for the highest-value or fastest-selling items in the business’ product portfolio. This category usually makes up the least share of total items in stock, roughly 20 percent.

B is the mid-value items, making up a larger share (30 percent) than A of the total things a manufacturing business offers.

C is the rest of the items, often the slow movers. They account for the least value but are usually the most in stock at around 50 percent of the total items.

The ABC inventory management strategy allows manufacturers to focus on the A items more. Consequently, managers ensure that those products are always available for customers because they bring the most revenue.

Consignment inventory management

The consignment inventory strategy relieves the business of the warehousing burden as well as total delivery costs. This is because it involves a manufacturer making a batch or more of goods and delivering them to one client who doesn’t have to pay for it in one go.

In other words, the client only pays when they have sold the products you delivered to them.

Consignment inventory management is especially ideal for manufacturers trotting out an untested product in a new market.

Cloud-based digital inventory management system

This inventory management strategy is based on material requirements planning (MRP). MRP involves tracing product requirements from the end of the production line. In other words, manufacturers only order raw materials to put in inventory based on how many products they require.

However, MRP is underscored by cloud-based computing to reduce the number of erroneous entries, ensuring that the system plans the inventory adequately.

Such digital inventory management systems provide the following benefits:

• faster and more accurate data entry, for example, barcode scanning

• improved order processing

• reduced cost of ordering stock

• instant access to inventory information regardless of location

• ensures optimal inventory levels at all time

• item-specific tracing even when products are out in the market