Inventory is one of the most complicated aspects of running a successful manufacturing operation.
Mess it up and the entire system grinds to a halt. Production lines stop moving. Customer orders pile up. Profits evaporate. Fortunately, there are proven manufacturing inventory management solutions that can prevent these issues from ever occurring.
However…
Inventory problems aren’t going away. But the strategies manufacturers use to solve them are rapidly evolving. This article will explore the latest trends in inventory management for manufacturers.
The best part is…
You can implement these solutions starting today. You don’t have to wait until you have extra budget. As we’ll see, there are low-cost tools and processes that can help manufacturers right now.
You just need to know where to look.
What to expect:
- Why Manufacturing Inventory Is So Complicated
- Top Manufacturing Inventory Challenges
- Solutions That Work
- Choosing The Right Solutions For Your Business
Why Manufacturing Inventory Is So Complicated
Manufacturing inventory is fundamentally different from traditional retail inventory. In many ways, it’s a completely different beast.
Manufacturers have to keep track of raw materials, work-in-progress items, and finished goods simultaneously. Each category has unique requirements. They each have a direct impact on production flow.
Forget one and the entire assembly line comes to a stop. Order too much of one material and capital gets tied up in assets that aren’t being used.
Inventory in manufacturing is complicated because of long global supply chains. Cheaper materials have come at the price of increased volatility. According to Unleashed Software, 72% of SMBs deal with inconsistent supplier delivery times. That lack of predictability cascades throughout the entire manufacturing process.
That’s why manufacturers that want to improve manufacturing inventory management must fully understand these complexities first. Only then can they identify and apply solutions that work for their specific situation.
It’s also why it’s so important. Meteor Space reports that inventory distortion costs an estimated $1.6 trillion globally every year. That includes shrinkage, stockouts, overstock, and more.
Shocking? Yes. True? Also yes.
Top Manufacturing Inventory Challenges
Here are the most common inventory challenges that manufacturers struggle with today. It’s important to understand the problem before trying to solve it.
Demand Forecasting Problems
Forecasting customer demand is already a challenge. Forecasting timing is even harder.
Under-forecasting inventory levels leads to shortages. Warehouses and stores run out of products that customers want. Sales and profits suffer.
Over-forecasting leads to excess inventory. Manufacturers have more in stock than customers want. That inventory just sits there taking up space.
The pandemic has made this problem even worse. People’s buying habits have changed. Supply chains have been disrupted. Manufacturers are still unwinding stockpiling behaviors that they adopted during that time.
Supplier Reliability Issues
Bad suppliers create problems for manufacturers. Bad suppliers create big problems.
Delayed deliveries result in production downtime. Low-quality materials need to be rejected and reordered. Minimum order quantity changes mean manufacturers must over-order.
Lead time variability is the number one issue that manufacturers experience with suppliers. If delivery times are constantly changing, it becomes nearly impossible to plan accurate inventory levels. Nearshoring has helped some manufacturers address this issue.
Overstocking and Understocking
This is the perennial problem of inventory management and it’s still plaguing manufacturers today.
Overstocking ties up capital that could be spent on other areas of the business. It wastes valuable warehouse space. It ages inventory so that products become obsolete. Eventually, that overstocked inventory becomes a drag on the balance sheet.
Understocking has similar negative consequences. Stockouts lead to lost sales and dissatisfied customers. In manufacturing, the lack of a single component can stop entire production lines. The impact of these problems add up quickly.
Legacy Systems and Integration Challenges
Some manufacturers continue to use antiquated systems for managing inventory.
These legacy systems don’t communicate with each other. Siloed data. Manual effort required to access real-time inventory information. Spreadsheets.
This creates blind spots and holes in the information that’s required to make good decisions. Data gets lost or delayed.
The lack of integration between procurement, production, and warehousing operations is a big problem.
Solutions That Work
Time for some good news. Let’s look at some practical solutions to help manufacturers with these inventory challenges.
Real-Time Inventory Tracking Systems
Visibility and real-time tracking revolutionizes inventory management in manufacturing.
Barcode scanning or RFID technology enables real-time tracking of materials, work-in-progress items, and finished goods. Gone are the days of spreadsheet estimates or hoping that manual processes are being performed correctly.
Every movement of inventory is recorded. Raw materials coming in. Parts and pieces through production. Finished goods ready to ship. Everything gets tracked.
This provides high levels of visibility across the entire operation. Nothing gets lost in the shuffle. Real-time tracking empowers rapid decision-making and optimized inventory management.
Demand Forecasting Tools
Forecasting tools use historical data and analytics to project future demand.
Historical sales data, seasonal trends, and other market conditions can be used to forecast future demand. These tools help manufacturers get the right amount of inventory, at the right time, to meet demand. They help eliminate “guesswork”.
The best forecasting tools have integrations with other business systems. Forecasting systems can consume data from sales, marketing, operations, and production to deliver increasingly accurate projections.
Supplier Relationship Management
Close and open communication with suppliers has never been more important.
Manufacturers should share their demand forecasts with key suppliers. This gives suppliers insight into expected demand and helps them manage their own production to prevent lead time variability.
Manufacturers should also consider building backup relationships with alternate suppliers. That way, if a primary supplier is unable to meet demand, another supplier can step in.
Cloud-Based Inventory Software
Cloud-based inventory management systems have a number of advantages over legacy software.
These systems deliver real-time data. Cloud-based solutions offer anywhere, any time accessibility. Updates are automated and the ability to integrate with other systems makes the entire process simpler.
One of the best trends is that these tools are becoming far more affordable. Smaller manufacturers now have access to powerful software solutions that were previously only available to larger companies.
How to Choose The Right Tools
Choosing the right inventory management tools and solutions requires careful planning and consideration.
It’s important to start by identifying the specific challenges that are causing the most problems. Demand forecasting? Supplier management? Real-time visibility?
Once the priorities have been identified, then it’s time to do some research. Are there tools and solutions that help solve these problems?
Look for technologies that can integrate with existing systems. The best tools plug into existing platforms and don’t require a complete business technology overhaul.
Consider scalability. Manufacturers should choose solutions that can grow with their business. Tools and systems that meet today’s needs should also be able to support increased volume tomorrow.
Don’t neglect training and support. Even the best tools can fail if the team isn’t trained in how to use them properly.
Wrapping It Up
Inventory management in manufacturing isn’t going to get any easier. Global supply chains, unpredictable demand, supplier issues, and other problems will continue to challenge manufacturers of all sizes.
However, the solutions for solving these problems do exist. Real-time inventory tracking, better demand forecasting, improved supplier relationships, and new cloud-based software tools can all help manufacturers manage inventory better.
It all starts with action. To recap, here are the first steps to better inventory management:
- Understand the specific inventory challenges that your manufacturing operation is facing
- Implement real-time inventory tracking for better visibility
- Use demand forecasting tools to anticipate demand
- Build relationships with reliable suppliers
- Adopt modern inventory management software
None of these steps are “free” but every one of them can be implemented quickly and without a large investment.
There are low-cost tools and processes that can help manufacturers get started today. You just need to know where to look and then take action.
Start with one challenge. Solve it. Then move on to the next one. That’s how manufacturing inventory management solutions get better over time.
