Avoiding inventory management pitfalls in the manufacturing sector, by Liam Merrick, Sales Engineer at ECI Solutions.
Inventory management is critical for small to mid-sized businesses (SMBs) because it directly influences both production efficiency and profitability. However, despite this, it’s often an area that needs the greatest improvement.
Effective inventory management involves complex and interrelated tasks, from forecasting demand and maintaining optimal stock levels, to ensuring swift and accurate delivery, managing storage, and reducing waste or obsolete models. These require detailed analysis, accurate data, and the use of advanced technology or inventory management systems. Without these, manufacturers may struggle with issues like low inventory turns, lack of visibility across departments, overstocking, stockouts, and high holding costs, which can significantly impact their operational efficiency, customer satisfaction, and bottom line.
Manual processes cost time and money
Results from a recent ECI Software Solutions’ customer “Warehouse Management Woes” survey shows that 53% of SMBs conduct manual inventory counts approximately once a quarter and 50% of respondents have challenges counting or reconciling inventory. This is because many SMBs do not have inventory recordkeeping policies and processes in place, including regular inventory counts, maintenance, and documentation.
A lack of inventory processes creates ad hoc warehouse management, but the fact that so many SMBs rely on manual processes creates a bigger problem. When you have physical counts conducted across multiple spreadsheets and data systems, it’s difficult to trust the data or track the flow of inventory. For manufacturing companies, inventory is their business. Yet often there is limited visibility into inventory, from raw materials to manufactured goods, and what is dispatched. They also have little insight into where there could be losses, inefficiencies, and even theft.
On the other hand, accurate inventory recordkeeping lets SMBs effectively balance inventory levels to ensure the proper stock is on hand. This delivers more streamlined manufacturing production, less waste, less time spent on shelf and over (or under) stocking, reduced operating costs, lower labour costs, and more consistent on-time orders delivered.
Visibility is crucial to manufacturing competitiveness
One of the biggest competitive challenges that SMBs face compared to their much larger counterparts is limited time, personnel, and financial resources. The result is that inefficient storage, display, and receipt processes are common.
When a business does not have a firm handle on its inventory, from raw material to final product, there can be a cascading effect that leads to other costly mistakes, including over-ordering, missing stock, and ordering incorrect materials.
To resolve this challenge, manufacturers must have a documented process that holds personnel accountable for oversight and the implementation of an automated and integrated process. One prime resolution to this challenge is to ensure that employees have clear instructions to follow regarding interaction with inventory, the ordering and storage of materials and finished products, material and merchandise handling, and the reporting of data. Ultimately, the business has full visibility into its entire manufacturing process without requiring more people on the ground.
Unlock working cash for growth
If cash is tied up in raw materials or excess inventory that has not been moved, the business can’t invest in other areas that provide a return on investment (ROI). This lack of liquidity also prevents the company from freeing up capital to purchase more raw materials or invest in updated technology or manufacturing equipment.
Accurate inventory and sales information, particularly around fast-moving products versus slower-moving products, is essential to an accurate purchasing process, as well as understanding the best opportunity for future growth. Successful marketing and advertising initiatives, as well as flash sales, are based on accurate inventory levels as well.
Streamline inventory management and reduce costs with automation
On a positive note, SMBs understand the importance of scheduled inventory counts. Unfortunately, due to a lack of automation, these counts tend to be physical. The ECI ‘Warehouse Management Woes’ survey found that 82% of SMBs complete scheduled physical inventory counts, and 46% supplement these with unscheduled. In addition, 22% perform cyclical counting of specific products on a rotating basis, and 19% do full physical counts only when an issue is discovered. The common thread here is that these counts are physical, which is both time-consuming and prone to errors. This might be why almost half of the respondents also conduct unscheduled spot checks.
Integrated inventory management software streamlines this process, reducing costs and offering a more accurate understanding of actual inventory levels. This provides multiple benefits such as: optimal inventory levels; predictive purchasing; process streamlining; and increased productivity.
Dynamic markets, fluctuating needs, supply chain issues, and the importance of being competitive make it crucial for SMBs to have visibility into the business and inventory management. Integrated inventory management software also gives insights into trend and market identification and variable inventory management due to fluctuating demands, empowering SMBs to stay ahead of the game.