Essentials: Manufacturing Inventory Software

For the manufacturing industry, inventory management is a balancing act that never ends. From ensuring raw materials are on site and ready for production, to tracking the status of work in process and then monitoring the availability and location of finished products, manufacturers must continually work to have product on hand with as little cost burden as possible.

Effective inventory management is one of the prime factors in the success of a manufacturing enterprise. The better able a manufacturer is to reduce its inventory costs, the more profitable it can become. That’s because every part of manufacturing inventory management impacts the bottom line. If raw materials are not available, production is stalled, raising carrying costs and impacting everything from cash flow to warehouse space, delivery times and, potentially, market share.

Manually keeping tabs on these tasks via spreadsheets or unconnected applications can quickly become a burden that affects a company’s bottom line. Today’s market calls for the support of manufacturing inventory software, especially those with integrated features, such as advanced analytics, end-to-end traceability and bill of materials (BOM) management. Thankfully, among the plethora of inventory management software solutions are many platforms available at price points that won’t break the bank. This article reviews inventory management essentials for manufacturers and the necessary components of today’s most effective manufacturing inventory software.

What is manufacturing inventory management?

Manufacturing inventory management is the process of tracking, planning and controlling a manufacturing company’s inventory throughout the production cycle – from pre-production to distribution. This translates into managing three basic types of manufacturing inventory: raw materials for production, works in process (WIP), and finished goods. The goal is to ensure enough inventory is on hand and that its use is being optimized at the least cost to the company.

Managing raw materials

Manufacturing requires many inputs, from raw materials and components, to equipment and machinery. Managing these inputs involves acquiring, storing and accounting for all of them. The ultimate goal being to ensure there is enough of all inputs in the right locations to maintain the flow of production with as little interruption as possible.

Managing WIPs

Works in process inventory refers to inventory that is under production but is not yet considered a finished good. WIP inventory management involves tracking, managing and appropriately accounting for these partially completed products. Manufacturers need to know how much WIP is on hand, where it is located and what stage of the production process it is in.

Managing finished goods

Finished goods inventory management entails controlling completed product that is ready to sell to customers. This involves a multitude of workflows, including warehousing, moving stock to meet demand and optimize cash flow, avoiding overstocking and stockouts, and effectively reducing spoilage and waste. It can also mean fulfilling orders, shipping orders and managing returned product.

Typical manufacturing inventory functions

Manufacturing inventory software encompasses all of the activities that go into ensuring production operations proceed efficiently, as well as those involved in getting finished product to its final destination. Typical manufacturing inventory functions include:

• Material requirements planning (MRP) – ensuring raw materials and components are available and ready for use by manufacturing operations.

• Purchasing – sourcing and obtaining necessary materials and equipment for production.

• Supplier management - managing supplier details, including contracts, product assignments, scheduling and performance metrics.

• Warehouse management – overseeing daily warehouse operations, including organization, shipping and receiving.

• Tracking - tracking the movement, location and status of materials and finished product, often employing digital techniques such as barcoding, scanning or radio-frequency identification (RFID).

• Auditing - tracking inventory location and quantity to compare physical inventory to accounting records.

• Manufacturing management – including job scheduling and bill of materials management.

• Traceability – employing a system to identify products individually or by batch to ensure correct use and for future tracking purposes.

Manufacturing inventory management methods

Several methods can be used for managing manufacturing inventory. The method or combination of methods a manufacturer chooses depends on many factors, including business needs and type of products. In general, manufacturing inventory management methods can be broken down into pull strategies, which are those that obtain inventory based on current customer orders, or push strategies, where inventory is produced or obtained based on forecasted demand.

Commonly used manufacturing inventory management methods include:

• First in, first out (FIFO) – FIFO is an inventory management method where assets are sold or used based on the order in which they are acquired, ensuring that the oldest products are used first. Last in, first out (LIFO) is the counterpart to FIFO, requiring the newest inventory be used first. LIFO, however, is less an inventory control method than it is an accounting practice as it does not require the physical movement of inventory. It is often employed during inflationary periods for its tax advantages, since higher-cost purchases are matched with current sales. This reduces income tax costs and thereby improves cash flow.

• Just-in-time (JIT) – The JIT method, also known as the Lean method, orders inventory only when it is needed in an effort to minimize waste while still meeting demand. For manufacturers, this could mean working closely with suppliers so raw materials arrive as production is scheduled to begin.

• Economic order quantity (EOQ) – EOQ is a formula that uses annual demand, ordering costs and holding costs to determine optimal order size and frequency. This method assumes that there is a constant demand throughout the year.

• Periodic inventory – This process involves a full physical count of inventory done at a set, standard period and updates inventory records at that time.

• Perpetual inventory – Perpetual inventory management involves continuously recording inventory changes in real time using electronic resources, such as barcoding.

Role of manufacturing inventory software

Manufacturing inventory software has become a necessity at least to some degree for manufacturing operations. Software improves manufacturing efficiency, allowing businesses to get products to market faster. It does this by integrating data and operations, eliminating redundant actions as well as error-prone and time-consuming manual processes. With it manufacturers can automate key processes, such as MRP and BOM management, and get real-time visibility into sales, purchasing and stock on hand.

Modern, advanced features of manufacturing inventory software include:

Real-Time Inventory Tracking

Inventory management software tracks inventory in real time, using barcodes, QR codes or RFID tags to scan and record materials as they’re received, moved, used in production or shipped to customers. This data helps managers see exactly what’s available, where it’s located and if more needs to be ordered, reducing production delays and providing the insight necessary to maintain balance between supply and demand.

Automated Reordering

Some inventory management software enables manufacturers to set up reorder points, which automatically generate purchase orders when stock levels drop below a certain threshold. This ensures that materials are available without holding excess inventory, saving space and reducing carrying costs.

Bill of Materials (BOM) Management

Having a BOM application as part of a manufacturing inventory management system makes it easy to see what components, raw materials and equipment are required to build a product and ensure that materials are on hand for production. A BOM helps organize and plan for materials purchases and enables manufacturers to quickly incorporate any changes.

Work Order and Production Tracking

Manufacturing inventory software often links with production systems to monitor work orders, tracking material use as parts move through production. This aligns production schedules with material availability to avoid bottlenecks and also helps manage work-in-process inventory.

Supplier Management

Manufacturing inventory software serves as a repository for supplier data, including lead times, item specifics and order histories. This makes it easier to build relationships with reliable suppliers, negotiate prices and ensure timely material deliveries.

Reporting and Analytics

With detailed reports on inventory levels, costs, turnover rates and wastage, managers are better able to make data-driven decisions. Analytics help track performance metrics, such as fulfillment rates and lead times, offering insights to help optimize inventory levels and production processes.

Demand Forecasting and Planning

By analyzing historical sales and production data, manufacturing inventory software helps forecast demand, estimating how much of each material or product will be needed. This forecasting guides purchasing decisions and reduces overstocking or understocking.

Ways inventory management software benefits manufacturers

Manufacturing inventory software connects manufacturing inventory data with operations for more efficient and streamlined workflows, more accurate information, and improved predictive and analytic capabilities.

Cost Savings

One of the most significant benefits of inventory management software is its ability to reduce costs. With better visibility into stock levels, businesses can avoid over-ordering or under-ordering products. This minimizes the costs associated with excess inventory and reduces the risk of stockouts. Additionally, by automating inventory tracking, businesses can cut down on labor costs related to manual counting and tracking of inventory, freeing up resources to be used elsewhere.

 Increased Productivity

Manual inventory management can be time-consuming and error-prone, especially as a business grows. Inventory management software automates repetitive tasks, including automatically updating stock levels and generating reorder alerts. This not only saves time but also reduces the likelihood of human errors. The software’s ability to integrate with other enterprise processes further boosts efficiency by ensuring data flows seamlessly across operations.

 Production Optimization

For manufacturing businesses, optimizing schedules and minimizing production delays are critical to staying competitive. Inventory management software enables businesses to track the flow of materials, ensuring that the right products are always available when needed. This helps avoid production bottlenecks caused by missing parts or materials. With better control over inventory levels, companies can adjust production schedules in real time, leading to more efficient workflows and faster turnaround times.

 More Accurate Financial Reporting

Inventory management software enhances financial accuracy by providing real-time insights into inventory costs and value. By keeping track of inventory in real time, businesses can maintain more accurate financial records, reducing discrepancies between inventory counts and financial statements. This ensures more precise reporting for audits and financial planning. Integrated systems allow for the automatic generation of reports, giving management access to the data they need for better decision-making and cash flow management.

Greater Customer Satisfaction

When your business runs efficiently, you’re better able to serve customers efficiently. With proper inventory on hand, businesses are able to meet customer demand in a timely manner. Inventory management software provides insight into available inventory so delivery times are estimated correctly and purchase orders are processed quickly.

Whether a manufacturer produces to order or to forecasted demand, modern inventory management is crucial to continued success. With inventory management software, manufacturers get advanced planning and workflow integrations, time-saving conveniences, like barcoding and automated reordering, and accurate, real-time visibility into the broader inventory picture. Manufacturing inventory software makes it easier to bolster cash flow while maintaining necessary levels of raw materials, WIP and finished goods.

QT9 INV software for manufacturing inventory management

QT9 Inventory Manager (QT9 INV) can help you reach and maintain that ultimate balance between inventory supply and demand. QT9 INV enables real-time insight into stock levels and locations, and provides advanced features that help you integrate inventory control into the success of broader operations.

With QT9 INV you get:

• Material Requirements Planning (MRP)
• Real-time Control and Insights
• Barcoding and Scanning
• Warehouse Management
• Bill of Materials (BOM) Tracking
• Lot and Serial Traceability
• Manufacturing Operations Integration
• Job Scheduling
• Supply Chain Management
• Integration with QuickBooks, Xero and Sage 50

For highly regulated businesses, QT9 INV seamlessly integrates with QT9’s highly rated quality management system (QMS) software. What’s more, you’ll get unlimited training, unlimited customer support, free software updates and tailored implementation support, all at an affordable price point.