Effective inventory management is necessary for any business selling physical goods. It helps avoid overstocking and understocking, and therefore optimize costs, reduces delays in deliveries, and improves customer satisfaction.
For product-making businesses, proper inventory management is even more important, because the costs associated with overstocking are even higher. That’s because you bought raw materials and spent resources on crafting a product that doesn’t give a return.
Understocking is equally complex for manufacturers, as you can’t simply ask your customers to wait days or weeks for their deliveries. In today’s world, everybody expects same-day or next-day delivery.
Manufacturing ERP software plays a crucial role in successfully managing inventory from raw materials to finished goods. Learning how to use such technology and successfully implementing it into your business will ensure you won’t have to face any of the issues described above.
What is inventory management?
Manufacturing inventory management is the process of tracking the stock of goods throughout the different stages of production, reducing costs, and streamlining operations. Inventory includes everything related to the manufacturing of your product: raw material, tools, and the finished product itself. Effective inventory management also includes work-in-progress products. This means that you are aware of how many items are in the process of becoming finished products and at what exact stage of the process they are, at any given moment.
The benefits of effective inventory management
- Improving your sales orders fulfillment
- Optimizing your resources (e.g. raw material, storing space, expenses, machinery, employees)
- Avoiding waste
- Saving time and money
Types of inventory management
There are three main types of inventory management strategies: just-in-time inventory, perpetual inventory, and ABS inventory. Let’s discuss each type.
1. Just-in-time inventory
Just-in-time inventory is ideal for those manufacturing businesses that make goods only when an order comes in. In this strategy, you always have just a few goods or raw materials in stock and you order more only when there’s a need. Costs, resources, and waste are reduced to a minimum.
2. Perpetual inventory
Perpetual inventory means updating your inventory constantly, at any order placed, at any stock moved, and at any new order for raw materials. It can be very overwhelming and time-consuming, but today’s digital tools like smart MRP software can automate a big part of this process.
3. ABC inventory
ABV inventory management categorizes your products, based on what sells and what doesn’t. This way you have higher availability for your best-seller products, and lower availability for those that sell less often. When you forecast that a certain product will sell out, your best bet is to make sure it doesn’t go out of stock.
Conclusion
Knowing exactly what inventory management is and how it can help you streamline operations is essential for any business, but even more so for manufacturing business. Using the right strategy, implementing software, and keeping track of operations are all fireproof ways to improve your productivity rate.
