10 inventory must do’s for small-to-medium manufacturers

Cash is king for manufacturers from the owner to the machine operators

By Adam Grabowski September 28, 2021
Courtesy: Chris Vavra, CFE Media

If someone visits a manufacturer, they will see most have a keen eye on how everything is used. Machines are generally only running if they are making parts; employees are typically only working if orders are coming in; and scrap is examined carefully to determine, “How did this happen? How can they prevent it from happening again? What else can they do with this?”

Even the best manufacturing owners make mistakes. But rarely do they make the same mistake twice. If someone asked them what some of their biggest mistakes have been, they are often tied to how their inventory was managed. Meaning, that was in the past and today they are doing something different.

What is different? After speaking with many manufacturing owners and many subject matter experts, the “different” is their business is choosing to live and die by the following 10 inventory must do’s with the help of enterprise resource planning (ERP) software.

1. Clear out the inventory garbage

What does this mean? It means people must process their inventory correctly and consistently with no exceptions.

The inventory processes should be documented, and employees trained, retrained and have absolute consistency in the product lines, units of measure, and so on. Documenting the process also means knowing explicitly who owns what including inventory master, inventory costing and inventory quantity. Everyone should know what they are doing, when, why and the consequences of it being done incorrectly.

The employee responsible for transaction processing cannot have access to inventory adjustments. A few hours spent training employees will save you money and heartache (and maybe even a lost customer) when trying to make a part with inventory that is not there. Clear the garbage out of the inventory process, and there will be a much better result.

2. Regulate inventory counts

Physical inventory or cycle counts should always be performed on a regular basis and produce accurate numbers.

Implementing regular inventory counts ensures consistent inventory accuracy throughout the year. We’ve found our customers complete this in one of two ways.

The first being they cycle count daily or weekly, which means they count parts based on usage or dollar amount to verify their inventory is correct. If their numbers are getting adjusted, that means their inventory is off, and they must figure out what inventory transactions are causing the issue.

The second way customers regulate inventory is by doing physical inventory, which calls for shutting down the shop floor and counting the inventory one weekend a year, sometimes two. To learn more about this, download subject matter expert Brady Steven’s whitepaper titled “How to Achieve Perfect Physical Inventory in 10 Easy Steps.” It is a great, superfast read that is likely to save customers thousands of dollars a year.

3. Evaluate unused inventory

Just like clutter in a home, obsolete inventory or low-turn inventory should be evaluated on a regular basis, not just once a year.

Inventory takes up space and space is money. If something is taking up space and not moving, then that is taking away an opportunity for something that could be selling and bringing in more revenue for a company.

4. Know business trends

Keeping an inventory labeled is an important step in controlling an inventory between physical inventories. Reorder, lead time and order quantity should be reasonably accurate and should be evaluated on a regular basis (and again, this doesn’t mean once a year).

Owners know their business better than anyone and knowing when spikes occur throughout the year allows them to better plan on seasonal changes in their inventory. If someone’s business is seasonal, they may need to adjust their min/max quantities throughout the year as well. A great way to evaluate this data is to be using key performance indicators (KPIs) for your business.

5. Research vendor competition

Vendors win when businesses get lazy. It’s okay to pick up those pesky sales calls occasionally.

Listen to the vendor’s sales pitch and what they have to offer as far as pricing and quality rating. People may be surprised by what venders have to offer. If people stick with the same vendor year after year, they may not receive the best bang for their buck. Prices slowly and steadily creep up, and their discounts suddenly vanish. Evaluate cost regularly and do not ignore savings on buying items in bulk when appropriate. This can be an opportunity for blanket orders to come into play with vendors, and people will receive a discount by planning ahead. But remember, this requires companies to know their business trends and when those seasonal spikes occur.

6. Automate as much as possible

If job costing is a full-time job, then there may be inventory issues.

By automating with the job costing accounting application, people can spend less time worrying about what their finished goods cost and more time on creating a quality product. Good job costing leads to accurate inventory cost and quantity that provides an opportunity to automate part or all this process ever year.

7. Record inventory flow

As inventory is consumed or shipped, it needs to be recorded. Some of our customers manage this process with one person, a team of people or they let their machinist move the parts. It’s entirely up to the owner, and the person in charge can decide who manages that process based on how skilled the employees are and the type of material.

The inventory process is as follows:

  1. Issue material to work order.
  2. Bin-to-bin transfer.
  3. Purchas order receipts.
  4. WIP (work in progress) to finished goods.
  5. Location transfers.

There is also the option of backflushing and auto WIP. If someone makes it to the last step and has 10 good parts, then 10 parts are WIPed into inventory (finished goods). Spend a few minutes every time and record inventory flow immediately to save hours in the long run.

8. Listen to the business with ERP

Hearing is the act of perceiving sound but listening is something one chooses to do. Move beyond “hearing” with a fully integrated ERP system with material requirements planning (MRP) functionality and “listen.” Manufacturers using an ERP system correctly are faster, smarter and more profitable than those who don’t. It isn’t a question; it is truth, and we have 150 case studies to prove it.

People should listen to their business by viewing and analyzing the data their ERP system provides to see trends, view roadblocks and make better business decisions. Using the business intelligence application, KPI application and dashboards, someone can see inventory detail in real time and allow them to listen to their inventory.

9. Correct employee mistakes immediately

Employee attitude and participation is the icing on the cake, and if an employee or machine isn’t doing something correctly, fix it.

For example, if Jane Doe is routinely recording inventory, but she always misses a few parts, then inventory counts will continuously be off and more money will be spent purchasing unnecessary inventory. Speak to a manager or superior and let them know concerns about the issues that are happening. Speak up and refer to Must Do No. 1.

Honesty is the best policy when it comes to business, especially with money involved. Addressing inventory mistakes early on reduces the risk of losing money, inventory and production time.

10. Always ask questions

Don’t guess how to do it — ask someone. There are resources available at Global Shop Solutions. No one should let the fear of asking a “dumb” question keep them from managing inventory the correct way and making money for their business.

Author Bio: Adam Grabowski is the director of marketing at Global Shop Solutions. He is responsible for translating the company’s business objectives into successful brand, marketing and communication strategies to drive awareness, revenue and loyalty.