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A Manufacturing Manager’s Guide to Stock Control and Inventory Management

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Inventory management is a complex process in manufacturing. Stock-outs, reduced sales, excess stock, and missing items are all problems experienced with inventory management. Even worse is when suppliers mess with their own inventory. Now is the time to strategically manage your inventory more efficiently.

In this article, we discuss inventory management techniques in detail, to help ensure that you never need to say no to your customers. Learn promising management methods to streamline manufacturing operations, forecast demands, and maintain a well-stocked inventory.

Using automation and adaptive capabilities, you will also learn about inventory management software designed to address supply chain and warehouse management challenges.

Benefits of inventory management

Manufacturing managers are responsible for balancing low stock levels and avoiding stockouts. Successful management of inventory and supply lines does not end at the warehouse. When streamlining manufacturing and inventory operations, businesses also experience:

  • Cost benefits
  • Operational benefits
  • Customer benefits

1. Cost benefits of inventory management

Inventory management offer several cost benefits for you as a manufacturing manager. First, it helps reduce the cost of shelving inventory that does not get used. Second, it minimizes waste and obsolescence, lowering disposal costs and preventing lost value from outdated items. Third, effective inventory management allows you to negotiate better pricing. You can place larger orders with suppliers when your shelves are not stocked with rarely used or out-of-date items, giving you more space for up-to-date components.

2. Operational benefits of inventory management

Inventory management helps streamline production by minimizing disruptions and delays caused by stockouts. You can also boost efficiency by allocating resources more effectively based on actual inventory availability. Reduced lead times mean quicker responses to customer demands and faster product turnover.

3. Customer benefits of inventory management

Inventory management isn’t just about stocking shelves—it’s a tool to delight your customers. By managing your inventory effectively, you can consistently meet customer demand and avoid frustrating stockouts, increasing customer satisfaction. This approach also improves order fulfillment, enabling you to deliver orders faster and reduce backorders.

Improve your cash flow by managing stock levels

Here are a few techniques to manage stock levels and improve cash flow.

1. Minimum order quantity (MOQ)

Minimum order quantity aims to manage stock levels without tying up too much capital in inventory. Balancing lower purchase costs with higher storage and lead time risks is essential for manufacturing managers. So, manufacturing managers have to find a balance between them. This is done by negotiating MOQ adjustments or considering alternative suppliers to optimize costs. Achieving this balance helps them maintain an optimal stock level.

2. Economic order quantity (EOQ)

The economic order quantity (EOQ) method reduces the stress of excess inventory and its associated costs. Optimizing ordering frequency and quantity based on EOQ helps manufacturing managers have enough stock to meet demand. EOQ method further helps minimize inventory holding costs, benefiting them by improving cash flow and operational efficiency.

3. Safety stock calculations

Calculations? Yes, calculating the optimal safety stock level reduces the risk of lost sales due to stockout. You can balance stockout risk and holding costs when the calculation is done right. There are various formulas to help you with these calculations.

1. Basic Safety Stock:

  • Formula: Safety Stock = Maximum Daily Usage * Maximum Lead Time
  • Strengths: Simple to calculate, good for initial estimations.
  • Weaknesses: Doesn’t consider demand variability or safety factors.

2. Service Level Safety Stock:

  • Formula: Safety Stock = Z * σ * Lead Time, where Z is the desired service level (e.g., 95%, 99%), and σ is the standard deviation of demand.
  • Strengths: Accounts for demand variability and desired service level.
  • Weaknesses: Requires historical demand data and accurate lead time estimates.

3. Lead Time Variability Safety Stock:

  • Formula: Safety Stock = Safety Lead Time * Average Daily Usage
  • Strengths: Considers variability in lead times, independent of demand variability.
  • Weaknesses: Requires historical lead time data, and may not fully capture demand uncertainty.

4. Combined Safety Stock:

  • Combines different approaches, often using the higher value from Service Level and Lead Time Variability methods.
  • Strengths: Offers a more comprehensive approach considering multiple factors.
  • Weaknesses: More complex to calculate, and requires more data and analysis.

5. Heizer Render’s Safety Stock:

  • Formula: Safety Stock = (Standard Deviation of Demand x Lead Time x √(2)) / (Average Daily Usage x Service Level)
  • Strengths: Integrates demand variability, lead time variability, and desired service level.
  • Weaknesses: Requires more data and calculation steps.

6. Greasley’s Method:

  • Formula: Safety Stock = Average Daily Usage * √((Lead Time x Coefficient of Variation of Lead Time) + (Demand Lead Time x Coefficient of Variation of Demand))
  • Strengths: Considers variability in both lead time and demand.
  • Weaknesses: Requires complex calculations and specific demand and lead time distribution data

4. Lead time considerations

Analyzing supplier lead times and negotiating for reductions can help manufacturing managers minimize the impact of lead times on their stock levels. Understanding lead times helps you plan inventory levels more effectively, reducing the risk of stockouts and overstocking. So that you can maintain optimal inventory levels, reduce costs, and improve operational efficiency.

Tracking and optimization of stocks

1. Inventory tracking systems

These systems can range from simple spreadsheets to more advanced software. They often use barcodes or RFID tags to track items. When an item is received, sold, or moved, it’s scanned, and the system updates the inventory records automatically. Some systems can also track expiration dates, serial numbers, or batch numbers, which is crucial for industries like pharmaceuticals or food.

2. Barcode technology

Barcodes are codes represented by a series of parallel lines that a barcode reader can scan. Each product has a unique barcode linked to a specific product in the inventory system. When a barcode is scanned, the system identifies the product and updates the inventory records accordingly. This technology is efficient and reduces errors compared to manual data entry.

3. Inventory turnover analysis

Inventory turnover is calculated by dividing the cost of goods sold (COGS) by the average inventory value. It shows how often a company has sold and replaced its inventory during a specific period. A high turnover rate indicates efficient inventory management, while a low turnover rate may indicate overstocking or slow-moving inventory. Analyzing turnover can help you identify which products are selling well and which are not, allowing you to make informed decisions about pricing, promotions, and inventory levels.

4. Days Sales of Inventory (DSI)

DSI is calculated by dividing the average inventory value by the cost of goods sold daily. It shows how many days it takes for a company to sell its average inventory. A lower DSI indicates faster inventory turnover, which is generally better for cash flow. Monitoring DSI over time can help you identify trends and adjust your inventory management strategies.

Avoid overstocking with demand forecasting

Just as we use past weather data to predict future rainfall, demand forecasting in inventory management analyzes past sales trends to identify patterns in stock demand. Several methods exist: historical data analysis, inventory cost analysis, machine learning, regression analysis, CPFR (Collaborative Planning, Forecasting & Replenishment), trend analysis, market research, and the Delphi technique. Each method offers unique insights into demand patterns, helping businesses optimize inventory levels and avoid overstocking.

1. Historical data methods

These methods look at your past sales to see any trends or patterns—similar to how we use data from previous weather to help forecast what tomorrow and the next day might look like. These methods are easy to use and good for products with stable sales, but they might not catch sudden changes.

2. Inventory cost analysis

Inventory cost analysis examines how much it costs to keep different inventory levels. It helps you find the right balance between having enough stock to meet demand and having too much, which wastes money buying and storing stock that doesn’t sell. This analysis helps you make smart decisions about ordering and stocking.

3. Machine learning

Machine learning is like having a smart robot to analyze sales and marketing data to predict future demand. It’s great for complicated products or markets that are subject to change, but you need good data and technical skills to use it successfully.

4. Regression analysis

The regression analysis method looks at how price and promotions affect sales based on past data. Figuring out people’s buying habits and how these relate to promotions is powerful. Knowing how people are likely to react helps you decide on prices, promotions, and where to put your resources.

5. CPFR (Collaborative Planning, Forecasting & Replenishment)

CPFR is all about working together! You and your suppliers and retailers share data about what you think will sell. This makes your forecasts more accurate, reduces the chance of running out of stock, and strengthens your relationships with your suppliers and retailers.

6. Trend analysis

This method looks at big trends in your industry, what your competitors are doing, and the economy to predict changes in demand. It’s like predicting which fashion styles will be popular next season. This helps you prepare for changes and adjust your production to meet new demands.

7. Market research

Market research involves talking to your customers to understand what they want and how they buy things. This insight helps you to find new opportunities and produce products and services that appeal to your customers.

8. Delphi technique

The Delphi technique gathers opinions from experts anonymously and then combines them to make a forecast. It’s like asking a group of knowledgeable people what they believe will happen and refining their answers to arrive at a prediction. It is useful for sourcing different perspectives and using the wisdom of a group to develop a forecast.

Reduce inventory holding costs

Reducing how much inventory you keep is another way to manage your stocks and prevent unwanted purchases. There is more than one way you can do it:

1. ABC inventory

In this method, you need to Sort your inventory into categories (A, B, C) based on how much you use them and how valuable they are. This helps you focus on managing the most important items better, so you don’t have too much or run out. It’s like sorting your closet to find and use your favorite clothes more easily.

2. Batch tracking

The Next method is batch tracking, where you need to keep an eye on inventory batches to find and fix problems in making and delivering products. This also helps you better manage expiration dates and quality, so you waste less. It’s like checking your groceries’ dates to ensure nothing goes bad.

3. Backordering

In backordering, instead of keeping too much stock, you only order items when someone buys them. This helps you reduce extra inventory and storage costs. It’s like ordering a new book only after you finish reading the one you have.

4. Bulk shipping

In bulk shipping, you combine orders into bigger shipments to save money on shipping for each item. This also means you keep more stock on hand, making you less likely to run out. It’s like buying bulk at the store to get a better deal and have enough for a longer time.

5. Just-in-Time (JIT) inventory

Order and get inventory only when needed for making or selling products. This helps you reduce holding costs, and waste, and improve cash flow. It’s like buying groceries for dinner on the same day, so you don’t have to store them for long.

6. Consignment inventory

Let your suppliers keep ownership of inventory until you use it. This can help you reduce holding costs and the risk of having too much stock. It’s like borrowing a friend’s tools and only paying for them when you use them.

7. FIFO vs. LIFO

Decide between FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) ways of managing inventory. FIFO helps you reduce waste and spoilage, while LIFO can be better for taxes but might lead to higher holding costs for some items. It’s like eating the oldest food in your fridge first to avoid it going bad.

8. Lean inventory

Use lean principles to reduce waste in your production and inventory. This helps you cut down on extra stock, lower holding costs, and work more efficiently. It’s like organizing your workspace to have only what you need, so you can find things easily and work faster.

9. Just-in-Time (JIT) manufacturing

Make products only when you need them, following JIT principles. This helps you reduce holding costs and work more efficiently. It’s like baking cookies just before you need them, so they’re fresh, and you don’t have to store them.

Inventory management software is all you need

Why inventory management software? You need an intelligent software solution to control and oversee everything discussed above, from forecasting demand to reducing inventory holding costs.

Inventory management software integrates supply chain and warehouse management, offering a comprehensive solution to manufacturing managers’ challenges. It helps track inventory levels in real-time, automate reordering processes, reduce errors, and improve efficiency. With such software, managers can optimize inventory levels, reduce holding costs, minimize stockouts, and streamline operations, leading to better decision-making and increased profitability.

When managing your inventory, it’s important to follow some key practices. You should organize your items in specific places, track how much stock you have regularly, and predict your needs based on your sales history. Using inventory management software can help you do this more easily. It keeps track of your inventory, saving you time, reducing mistakes, and ensuring your records are accurate. You can also use handheld devices or mobile apps to scan items. This helps you update your inventory immediately and reduces the need for paperwork.

Managing your supply chain is also important. It means ensuring everything moves smoothly from your suppliers to you and your customers. Using barcodes and RFID tags can make tracking your items easier and more accurate. Barcodes are unique codes for each item, while RFID tags use radio waves to track items without needing a direct line of sight.

Finally, managing your warehouse efficiently is key. This means organizing everything inside it, keeping track of where everything is, and making sure everything runs smoothly. It helps you use your space better and get orders out to customers faster.

Transforming the hectic life of a manufacturing manager with Zuper

Can we talk about ZUPER now? Being the most powerful field service management software in the market, Zuper’s inventory management software is the solution successful businesses choose and love. Here are a few highlighting features of Zuper software,

  1. Capture inventory movement and consumption metrics across multiple warehouses.
  2. Give stakeholders actionable insights on spare parts utilization trends with real-time monitoring.
  3. Barcode scanning to pull up parts, auto-populate the fields, and check availability.
  4. Connect seamlessly with third-party accounting software to sort out financials
  5. Control the inventory flow between multiple job sites and warehouses from a single dashboard.

Transforming the hectic life of a manufacturing manager into a stress-free one, ZUPER enables you to automate tasks and accomplish more in a day. Book a free demo today to experience stress-free work and increased productivity firsthand!

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