9 Proven Strategies to Master Manufacturing Inventory Management
While Industry 4.0 and just-in-time delivery grab headlines, what separates successful manufacturers from those that are struggling isn’t always about who has the newest, flashiest IoT components. It comes down to the age-old fundamentals of manufacturing inventory management. So in this blog, we’ll explore the need for better inventory management and how today’s tools and practices can make tried-and-true manufacturing philosophies revolutionary.
The True Costs of Poor Inventory Planning
Poor inventory planning silently drains millions from manufacturing operations — and most companies don’t realize how much until it’s too late. These stats make it easy to see how little inefficiencies can add up to big problems:
- Inventory distortion, the gap between records and actual stock levels, costs the manufacturing industry $1.8 trillion
- Stock-outs and overstocks can increase inventory costs by 10%
- 58% of retail brands and D2C manufacturers have below 80% inventory accuracy
- The average business has $142,000 worth of inventory above what’s required to meet demand
- Global warehousing property costs recently grew 10.1% in a single year
To sum up — it’s becoming much more expensive to store inventory. Plus, most businesses store way too much, and aren’t even sure what they have in stock. That all adds up to trillions of dollars in unnecessary costs.
The scope of the problem is big. Fortunately, manufacturing inventory management strategies and tools can be a big help.
What Is Manufacturing Inventory Management?
Proper inventory management is about controlling all of the materials needed during your manufacturing process — from raw components through finished products that are ready to ship.
What Should Inventory Management Include?
Your inventory management strategy should include everything from basic materials to complex sub-assemblies, plus any work-in-progress items moving through your production line.
From procurement through fulfillment, in an ideal world, your strategy will balance having enough materials to meet demand without tying up excessive capital in stock and storage space.
Of course, that’s easier said than done, but there are definitely things manufacturers can do to make life easier.
9 Smart Inventory Control Methods for Manufacturers
Here are the 9 most effective approaches manufacturers can use to control inventory costs
while keeping up with demand. Some of these methods can be combined to improve
efficiency in the process. 
1. Just-in-Time (JIT)
With just-in-time inventory management, the goal is to store only enough inventory to meet your immediate needs.
It can help you reduce storage costs and free up more capital, but in order for it to work, you’ll need reliable suppliers that can be counted on to deliver precisely what you need when you need it.
Considering the supply chain shortages we’ve seen over the past few years, as well as the current geopolitical landscape, just-in-time inventory management is a way to save on costs, but only when you can count on it.
2. Economic Order Quantity (EOQ)
EOQ uses a simple calculation based on how much you use per year, your ordering costs, and your storage costs to find the order size that keeps your total costs as low as possible.
The caveat? It doesn’t work well when your usage is unpredictable.
3. ABC Analysis
Not all inventory is the same! An ABC analysis is a simple method of prioritizing your inventory according to its importance. “A” items are most valuable and get the most attention, “B” items are in the middle, and “C” items get the most basic management. ABC analysis helps you focus your resources where they matter most.
However, it can be time-consuming to implement for businesses with large inventories and may require ongoing updates when market conditions shift.
4. Cloud-Based Digital Systems
Cloud technology has come a long way for manufacturers. Adopting it sometimes comes with challenges, but more and more manufacturers are using sophisticated software to track their inventory in real-time, automate reordering, and forecast demand.
Pros — you can use cloud tech to get 24/7 visibility and calculate optimal order quantities automatically.
Cons — adopting cloud tech sometimes means you need to upgrade your internet, software, and other components, which can be expensive and time-consuming.
5. Cycle Counting
Cycle counting refers to regularly counting small portions of your inventory to make sure your computer records match what’s actually on your shelves. Instead of shutting down to count everything once a year, you just count different sections throughout the year to make sure you catch small problems early.
6. First In, First Out (FIFO)
This one’s exactly how it sounds. First in, first out means you use your oldest materials first, like rotating stock at a grocery store. You put new deliveries in the back and take them from the front, so nothing sits too long. This is especially important for items that can expire, spoil, or lose effectiveness over time, like chemicals, food ingredients, or electronic components.
7. Weighted Average Cost (WAC)
Weighted average cost means you average out the cost of all similar items in your inventory, instead of tracking costs by each individual batch.
For example, if you bought steel at $100/ton in January and $120/ton in March, WAC would use $110/ton for both. This smooths out price swings from suppliers and helps you maintain consistent pricing for your customers, even when your material costs fluctuate.
8. Consignment Inventory
With consignment inventory, your supplier keeps their materials at your facility, but you don’t pay for them until you actually use them.
It’s like having a vending machine on-site — the supplier owns the products until you take them out. This reduces your cash tied up in inventory and storage costs, since you’re not buying materials that might sit unused for months.
9. Last In, First Out (LIFO)
Last but not least, there’s last in, first out. It’s the opposite of FIFO, and while that might sound counterintuitive, it offers a few advantages in special circumstances.
Companies often use a LIFO approach during periods of high inflation. Since newer materials cost more, using them first increases their reported costs and reduces their taxable income.
While this can provide tax savings, there’s an obvious drawback — older, cheaper materials will be sitting in inventory longer.
How BFMⓇ fittings Can Streamline Component Inventory Management
Component inventory management doesn’t always get the attention it deserves. In fact, it’s often a huge blind spot for manufacturers.
But, proper inventory management is about managing all of the materials you need to make your product — including components.
When the components you use lead to delays, disruptions, and safety issues, then what’s often thought of as a “minor detail” could be eating up a significant portion of your profits.
What We Hear From Manufacturers
At PSI, we work very closely with manufacturing clients across the country to help them make their processes cleaner, safer, and more efficient. Here’s what we continue to hear first-hand from customers who have adopted BFMⓇ fittings:
- They have to replace their connectors less often, which saves them time and reduces the quantity of backstock they have to maintain
- When they do need to replace their BFMⓇ flexible connectors, the snap-in design allows for quick changeovers
- Because of the versatility that’s baked into each design, they get the same results with fewer SKU counts
Having to find, buy, store, and restock a different-sized connector for each application in your facility is complicated. It’s also unnecessary.
BFMⓇ fittings make it possible to consolidate a dozen different SKUs into just one. And it’s all thanks to the BFMⓇ spigot, which creates standard-sized connection points on your equipment.
Helping Your Bottom Line
Effective inventory management isn’t just about sophisticated software or complex forecasting models.
Certainly, those things can help. But sometimes the big things are really about small things, like eliminating the operational inefficiencies that force you to carry excess stock in the first place.
When your production changeovers are slow and unpredictable, you’re forced to run larger batches and maintain higher safety stock levels. When your equipment connections leak or fail, you face costly contamination issues and unplanned downtime that disrupts your entire inventory flow.
Using the right connector technology is a single step, but it can be a huge leap towards achieving lean manufacturing, allowing you to produce what you need, when you need it, with less back stock.
Click the link below to learn how Bob’s Red Mill Natural Foods reduced downtime and boosted efficiency by making the switch!
