Inventory Management Strategies for Manufacturing

Managing inventory prevents stockouts and overstocking and ensures production lines fulfill orders quickly and accurately. Explore 10 strategies to streamline the management of your raw materials, work-in-progress materials, finished goods, and maintenance, repairs and operations (MRO) inventory. 

10 Effective Inventory Management Strategies

These inventory management techniques can help operations move smoothly. 

1. Just-in-Time Inventory

Following the just-in-time (JIT) inventory model means you have the stock to produce only what you need. It requires working closely with suppliers to ensure supplies arrive at your facility as production is about to begin — this way, you can meet demand without excess stock taking up valuable warehouse space. The JIT model works best when you have a robust demand planning strategy and a reliable supply chain. 

2. Economic Order Quantity

If your inventory requirements are fairly consistent, the economic order quantity (EOQ) method may be beneficial. The EOQ formula helps manufacturers determine optimal order quantities to ensure you never have too much or too little stock.

3. FIFO and LIFO

“First In, First Out” (FIFO) and “Last In, First Out” (LIFO) strategies suit certain types of manufacturing companies:

• FIFO: The FIFO strategy involves using inventory in the order it was created. Manufacturing companies typically use FIFO over LIFO if they produce items with a shelf life, such as batteries. 
• LIFO: Companies producing items with a longer expiration date, such as clothing items, might use the LIFO strategy, in which the last items added to the inventory are the first ones used. While LIFO can be difficult to monitor, it allows manufacturers to recoup investments sooner in periods of inflation — newer inventory typically costs more. 

4. Weighted Average Cost

When tracking individual items is impractical, manufacturers may rely on the weighted average cost (WAC) method of valuation. Manufacturers calculate the average cost of all inventory items, which helps minimize the impact of price changes and inflation and provides a more stable cost picture. 

5. ABC Analysis

Manufacturers can also categorize stock via ABC analysis:

• Class A items: The highest-value items. 
• Class B items: Moderately important inventory.
• Class C items: The least essential stock. 

When you use this method, you might prioritize restocking Class A inventory over Class C. If necessary, you can use more letters to create more categories. 

6. Demand Forecasting

Anticipating changes in demand helps manufacturers adjust stock levels to avoid stockouts and overstocking. Demand forecasting — predicting demand based on past trends — is slightly different from demand planning, which involves setting goals to ensure manufacturers have the right inventory at the right time. 

7. Cycle Counting

The cycle counting method ensures your records align with inventory levels. Every day, week or month, you can count a portion of your inventory, compare it to your records and resolve issues. To combine cycle counting with ABC analysis, you can count Class A items more frequently than Class B or C items. 

8. Safety Stock

Manufacturers can avoid unexpected shortages and production delays by maintaining a small reserve of critical stock. While not as cost-effective as strategies like JIT, maintaining safety stock provides a buffer in case of emergencies. 

9. Lean Manufacturing

Manufacturers looking to minimize waste while improving efficiency can focus on lean manufacturing principles. The five principles of lean manufacturing include:

1. Identifying value. 
2. Mapping the value stream.
3. Creating flow.
4. Establishing a “pull” system by working according to demand.
5. Continually striving for perfection. 

10. Consignment Inventory Management

With this model, a retailer or distributor receives goods from a manufacturer, but the manufacturer retains ownership of the goods until they are sold. Then, the retailer pays the manufacturer for sold goods and returns unsold items. This reduces carrying costs for manufacturers. Consignment inventory management differs from the traditional strategy, in which a retailer pays a manufacturer for goods before selling them. 

How to Streamline Inventory Management 

Your manufacturing company can optimize inventory tracking by: 

• Addressing outdated processes: Updating processes can help your business grow. Obsolete processes can be time-consuming and may result in issues like stockouts and overstocking. 
• Conducting routine audits: Audits ensure your records match your physical inventory and may help you catch instances of theft. Cycle counting is an example of a smaller audit you can conduct throughout the year. 
• Developing standard operating procedures (SOPs): Implementing SOPs for tasks like storing and shipping helps ensure consistency in inventory management. 
• Creating a process for dead stock: Whether it’s not selling because it’s out of date, out of season or not in demand, “dead stock” takes up valuable storage space. 
• Prioritizing layout and organization: Installing vertical shelving, ensuring aisles are wide and creating specific zones can make your warehouse easier to navigate. 
• Improving supplier relationships: Nurturing supplier relationships can result in better pricing and more ideal payment terms. 
• Setting minimum stock levels: Minimum inventory levels, or reorder points, describe the lowest quantity of stock you should have before purchasing more. 
• Relying on inventory management software: Enterprise resource planning (ERP) systems help manufacturers manage inventory with real-time tracking, improved demand forecasting and enhanced reporting features. 

How Microsoft Dynamics 365 Simplifies Manufacturing Inventory Management

ERP systems for manufacturing store relevant data in one place. With real-time monitoring capabilities, you can enjoy benefits like: 

• Decreased operational costs.
• Increased customer satisfaction.
• Greater awareness of trends, insights and pain points.
• Reduced instances of human error to improve decision-making.

Microsoft Dynamics 365 is a line of applications that combines the benefits of ERP and customer relationship management (CRM) software. Microsoft Dynamics 365 Supply Chain Management is a leading operational management and cloud-based software that allows you to:

• Forecast demand accurately: Microsoft Dynamics 365 enhances forecasting with predictive analytics driven by artificial intelligence (AI). 
• Streamline master planning capabilities: Complete five-hour tasks in five minutes with Microsoft Dynamics 365 for supply chain management. You can plan supply and distribution using in-memory services to get the correct inventory at the correct time. 
• Eliminate stockouts: Demand-driven material requirements planning (DDMRP) improves customer service and reduces lead times. 
• Improve collaboration: Microsoft Dynamics 365 integrates with Microsoft Teams, meaning you can enjoy seamless team communication. 
• Minimize downtime by simplifying maintenance: AI capabilities allow manufacturers to predict maintenance needs before they arise, which reduces downtime. 
• Get a quick view of operations: The mobile app lets you view, schedule and execute work orders. 
• Maximize staff support: The platform uses AI insights to guide team members through work orders, provide suggested actions and offer live guidance to technicians using mobile devices. 

Contact Winfosoft for Microsoft Dynamics 365 Implementation and Consulting Services

Winning Information Software (Winfosoft) has decades of experience in ERP software solutions. As a Gold Certified Partner of Microsoft and the recipient of awards like the Microsoft Competency Award for best customer service and industry expertise, you can trust us to guide you in your ERP investment. 

You can rely on us for personalized implementation and consulting services. During implementation, we employ a “Methodology for Success,” and our flexible consulting services ensure you get the most out of Microsoft Dynamics 365. Contact us today for ERP implementation and consulting services!

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