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Improving Inventory Management for Manufacturing Companies

By Citrin Cooperman Digital Services Practice .

The manufacturing industry recognizes that, while the end product is important, the individual components—including works in progress, finished goods, packaging materials, raw materials, and maintenance materials—play a crucial role. For manufacturers to meet demand by producing the right products in the right quantities and at the right time, these components are equally significant. Failure to achieve this can lead to consequences, such as missed sales, over- or under-production, operational bottlenecks, and cash flow issues, eroding the overall financial health of the manufacturer. This underscores the vital importance of effective inventory management for manufacturing companies. It is essential for manufacturers to understand strategies they can implement to handle their inventory efficiently and best practices for inventory management to control expenses and optimize profits.

Manufacturing inventory management explained

Manufacturing inventory management strategies encompass a range of techniques employed by companies to oversee, regulate, and enhance their inventory levels. These approaches vary with some emphasizing the timing of inventory arrival from suppliers while others prioritize the importance of items and their value. The significance of effective inventory management lies in its ability to maintain the seamless and cost-efficient operation of production lines, ensuring timely fulfillment of orders while mitigating the financial challenges associated with excess stock. By implementing these strategies, manufacturers can strike a balance that optimizes efficiency and minimizes costs throughout the inventory management process.

Nine inventory management strategies for manufacturing companies

To maintain the smooth operation of production lines and supply chains, manufacturers need to meticulously monitor and control inventory levels. The approach they choose for inventory management is influenced by their objectives, the industries in which they operate, and the nature of their products.

Employing the following inventory management tactics can enhance efficiency while simultaneously reducing waste and missed opportunities, ensuring a more streamlined and effective manufacturing process.

  1. Consider if just-in-time (JIT) inventory management makes sense

    The JIT inventory system is a method wherein businesses procure a stock in quantities sufficient to fulfill present customer demand. By aligning raw material orders directly with production schedules, businesses can sidestep the expenses tied to maintaining a substantial inventory. This strategic methodology allows companies to order necessary materials and components precisely when needed for production, minimizing holding costs and ensuring the availability of required products.

    While JIT has the potential to enhance overall efficiency and profitability, its implementation and maintenance can pose challenges due to its intricacies.
  2. Conduct an ABC inventory analysis

    The ABC inventory management strategy involves a meticulous assessment of a manufacturing business’s product portfolio to ascertain its contribution to the company’s revenue.

    In this method:
    • A represents the highest-value or fastest-selling items, constituting approximately 20% of the total stock.
    • B includes mid-value items, occupying a larger share (30%) compared to A.
    • C comprises the remaining items, often slower in sales but constituting around 50% of the total inventory.

    This approach enables manufacturers to concentrate efforts on the A items, ensuring their consistent availability to customers due to their significant revenue contribution. By categorizing and prioritizing products based on value and sales velocity, manufacturers can optimize their inventory management and enhance overall operational efficiency.
  3. Set minimum inventory levels

    The minimum inventory level, commonly known as the reorder point, signifies the lowest stock quantity that a manufacturer should maintain before initiating a replenishment order. Falling below this crucial threshold poses the risk of stockouts, potentially impeding the manufacturer’s ability to fulfill production demands in a timely manner.

    By establishing and adhering to the reorder point, manufacturers can effectively manage their inventory levels, aligning them with demand forecasts and minimizing the chances of operational disruptions.

    Today’s enterprise resource planning (ERP) systems embed forecasting tools to dynamically set this value so that subtle consumption or supply trends are identified, and data optimized before it's too late.
  4. Manage good relationships with suppliers

    Fostering strong ties with suppliers is essential for manufacturers’ activities, such as negotiating favorable pricing, ensuring timely deliveries, and potentially collaborating on product development. These efforts, encapsulated in supplier relationship management (SRM), not only enhance existing relationships but also serve as a vital process for gauging the need to switch suppliers in response to evolving conditions.

    Prioritizing SRM enables manufacturers to reap benefits, such as preferential treatment, and can play a pivotal role in the overall efficiency and success of the supply chain.
  5. Integrate technology

    Leveraging technology with cloud-based digital inventory management complements other strategies by providing a centralized software solution that’s accessible around the clock. Through this system, manufacturers can automatically monitor inventory in real-time, guaranteeing adequate stock levels to meet buyer demand. Notifications are triggered when inventory falls below a specified threshold, making it easy for managers to see what is going on and when certain parts of the operation need attention.

    Furthermore, cloud-based systems facilitate calculations of economic order quantity (EOQ) and wholesale acquisition cost (WAC), forecast product demand, and strengthen partnerships with suppliers.

    This integration of web technology enhances overall efficiency and synchronization in inventory management, aligning seamlessly with other strategic approaches.
  6. Consolidate orders and rely on bulk shipping

    Efficient stock level assessment is achieved through the consolidation of orders, enabling companies to allocate resources more accurately. This approach minimizes the risks of stockouts, overstocking, and inefficient practices.

    The result is an enhancement in supply chain management, ensuring optimal utilization of resources and streamlined inventory operations.
  7. Focus on continuous improvement

    Continuous improvement is integral to effective inventory management in manufacturing. It involves regularly assessing and refining inventory processes to boost overall efficiency.

    Manufacturers can implement lean principles, focusing on waste reduction and value maximization, to identify and address inefficiencies. Embracing technology, such as advanced inventory management software, enhances visibility and agility in responding to market changes. Workforce training programs ensure employees are adept at the latest practices, fostering innovation and adaptability.

    Ultimately, continuous improvement creates a more resilient and responsive inventory management system aligned with overall business objectives.
  8. Integrate cross-training and workforce development

    Cross-training and workforce development constitute a crucial aspect of effective inventory management for manufacturers. Solid training processes ensure employees possess versatile skill sets and are capable of handling multiple tasks within the inventory control process.

    By cross-training staff, manufacturers mitigate the risks associated with dependency on specific individuals and enhance the overall flexibility of the workforce. In doing so, organizations promote adaptability to changing circumstances and foster more collaborative and efficient work environments.

    In addition to reducing vulnerabilities related to specialized roles, cross-training contributes to workforce engagement and satisfaction, as employees gain a broader understating of the manufacturing processes and their interconnectedness.

    Ultimately, a well-trained and cross-functional workforce plays a pivotal role in the continuous improvement of inventory management.
  9. Create a roadmap for eliminating surplus inventory

    Inventory that moves at a sluggish pace can transform into unsellable stock, burdening manufacturers with “dead stock” that incurs costs merely by occupying space.

    To alleviate this challenge, manufacturers can explore various strategies such as substantial price discounts, combining the inventory with other products, getting rid of items, or opting for charitable donations.

How Citrin Cooperman supports inventory management for manufacturing companies

Effective inventory management is paramount for manufacturers to navigate the complex landscape of production and supply chains. The strategies outlined above—from JIT inventory systems to cross-training employees—offer a comprehensive approach to streamlining operations, reducing costs, and enhancing overall efficiency.

Citrin Cooperman’s Digital Services Practice is skilled in implementing and supporting technology designed to meet the needs of the modern manufacturer. To learn more about how our team can help elevate your inventory management practices and boost profitability within your manufacturing facility working alongside the firm’s Manufacturing and Distribution Industry Practice, reach out to your Citrin Cooperman advisor or Maria Hammadi at sales@citrincooperman.com.

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