Manufacturing inventory management: A complete guide

Many manufacturers assume that their production lines are the backbone of their operations. But actually, it’s inventory management. 

Imagine trying to keep your production rolling smoothly without knowing if you have enough materials on hand or if your finished goods are ready to ship. That’s why effective manufacturing inventory software is a necessity.

In this guide, we’ll dive into the nitty-gritty of inventory management for manufacturing, share some best practices, introduce you to the leading inventory software for manufacturing industry players, and show you how systems like Linnworks and SkuVault Core can help you tackle common challenges.

Ready to learn how to assemble (pun intended) an inventory management system that sets you up for success? Then, let’s roll up our sleeves and get started. 

What is manufacturing inventory management?

Inventory management in the manufacturing industry is all about keeping track of everything that goes into creating your products—from raw materials and semi-finished products to the finished items that head out the door. Think of it as the control center of your operation, where you oversee the movement of parts and products, monitor stock levels, manage orders, and optimize production processes. 

Manufacturers have much more inventory to track than ecommerce operators like resellers and drop shippers, who typically deal with completed individual SKU items. For example:

• Furniture makers must have enough wood, fabric, and hardware in stock to fulfill customer orders.
• Automotive manufacturers need to track various components like engines, tires, and electronic systems to keep production lines running at optimum speed.
• Electronics producers manage a complex inventory of circuit boards, screens, and casings, requiring precise control to meet consumer demand without overstocking.
• Food manufacturers must handle SKUs encompassing grains, proteins, and packaged meals in a way that neither compromises freshness nor results in spoilage.
• Textile manufacturers have to keep a variety of fibers and dyes in stock to produce different fabric types without interruption.

What are the types of inventory in manufacturing? 

Manufacturers juggle several types of inventory, and each is vital for keeping operations running like a well-oiled machine:

• Raw materials: These are the building blocks of your products, including metals, plastics, wood, glass, chemicals, components, and fabrics. 
• Work-in-progress (WIP): This category includes items that are in various stages of production. Examples include fabricated metal parts awaiting coating, unpacked electronic circuit boards, baked but unpackaged food supplies, etc.
• Finished goods: These are your completed products, ready to hit the shelves or be shipped to customers. Think fully assembled vehicles, boxed smartphones, and fully packaged cosmetics and foodstuffs.
• Maintenance, repair, and operations (MRO) supplies: The unsung heroes of your manufacturing empire, MRO supplies include all the cleaning materials, tools, safety equipment, lubricants, and spare parts you need to keep your machinery running smoothly.

Keeping an eye on each one of these inventory types is critical to ensure hiccup-free production flows. Otherwise, you’ll leave yourself open to lost revenue due to delays in order fulfillment, increased operational costs, dissatisfied customers—or worse, all three.  

However, keeping track of every type of inventory manually is like trying to navigate a busy city without a map—you’re bound to get lost and waste time. That’s why inventory management software for manufacturing industry enterprises is considered essential. 

“In SkuVault Core, we keep track of all of our raw materials, our fabric, the gripper that goes into the sleeves, how much the manufacturer charges us per sleeve and all of our tertiary items. Everything is tracked and it connects to everything. It’s the core of our inventory system.”

— Trip Alba, Operations Manager at Nelson Wear

What are the key components of inventory management in manufacturing? 

Successful inventory management hinges on several (often complex) processes that work together to create a seamless operation. Thankfully, robust manufacturing inventory software is available to help you avoid costly mistakes. 

Given the inherent complexities of the manufacturing industry, many companies are turning to innovative AI solutions to boost supply chain efficiency and overall inventory management effectiveness. Here’s a few examples of how they can be applied. 

Inventory tracking systems

Accurate record-keeping is essential to prevent production lines from grinding to a halt and optimize revenue through supercharged order fulfillment. That’s where dedicated inventory management software for manufacturing industry enterprises is worth its weight in gold. 

For example, Linnworks offers specialized inventory software for manufacturing industry leaders that integrates various tracking methods to provide enhanced inventory visibility and effortless stock control:

• Real-time tracking lets you know exactly what’s available where, helping you avoid the pitfalls of overselling and disgruntled customers. 
• Barcode scanning and RFID technology make it virtually impossible for teams to ship the incorrect product, resulting in a lower cost per pick. 
• Batch picking and packing processes group items for efficient picking and packing, saving time and effort for your warehouse teams.
• Advanced shipping automation ensures the correct labels are applied every time, eliminating errors due to manual processes.  

Inventory control methods

When it comes to how you maintain the right stock levels, the right approach will depend on the unique demands and operational complexities of your business. That said, here’s a quick rundown of the techniques most likely to make a significant impact for manufacturers.

• Just-in-time (JIT): This approach minimizes inventory costs by ordering materials only as needed. For example, an automotive manufacturer might utilize JIT inventory management to order specific parts right before they’re required on the assembly line, reducing excess inventory and saving storage costs.
• Economic order quantity (EOQ): Calculating the ‘Goldilocks’ OEQ helps to minimize stock outlay and holding costs. For example, a food manufacturer might use an economic order quantity formula to ensure a sufficient supply of raw ingredients without overstocking perishable items.
• ABC Analysis: By categorizing inventory into A, B, and C groups based on their importance, manufacturers can prioritize their management efforts. For instance, a textile manufacturer might choose ABC analysis to monitor high-value fabrics (A) more frequently, while checking low-cost sewing threads (C) more sporadically.

In the manufacturing industry, inventory control and warehouse management are inextricably linked. That’s where solutions like SkuVault Core can help by bringing inventory and warehouse management into one place. Not sure of the differences between the two? Here’s a quick 101 explainer video to clear up any confusion and highlight the benefits.

Inventory forecasting

Accurate inventory forecasting and tracking is essential for maintaining optimal inventory levels. By analyzing historical sales data, seasonal trends, and market conditions, you can predict what you’ll need and when. For example, a sports equipment manufacturer may expect a surge in orders during key local, regional, and international sporting events that spark enthusiasm among consumers, motivating them to gear up and participate.

Ready for a teensy bit more shameless self-promotion? Excellent (we presumed that was a yes, obviously)! Linnworks’ dedicated inventory management software for manufacturing industry pros comes with stock forecasting models that allow you to plan with complete confidence, helping you to:

• Optimize inventory levels
• Improve budgeting and cash flow management
• Make informed, data-driven decisions
• Boost supply chain efficiency
• Gain a competitive advantage

Safety stock and reorder points

From a consumer perspective, nothing is more disappointing than excitedly researching a purchase only to be thwarted at the finish line by an ‘out of stock’ notification.

Want to eliminate those frustrating “have cash, can’t buy” consumer woes for good? Keeping safety stock in your warehouse provides a vital buffer against unexpected spikes in demand or supply chain disruptions. When paired with reorder points that automatically trigger new orders when stock levels dip too low, you’ll have all the tools needed to combat those dreaded stockouts.

The good news is that (yep, you guessed it) both can be automated using reliable manufacturing inventory software like Linnworks.

4 inventory management techniques and strategies for manufacturing businesses 

Remember, effective inventory management isn’t just about tracking stock levels. It also involves implementing strategies that enhance efficiency and reduce waste. Therefore, most inventory software for manufacturing industry aficionados leans heavily into methodologies that support the JIT method of inventory control. 

Let’s take a look at some of the specific techniques involved.

1. Lean inventory management

Lean inventory management emphasizes the elimination of waste while maximizing productivity and value. The primary goal is to drive more revenue with fewer resources by reducing the amount of excess inventory, which enhances supply chain efficiency and reduces holding costs.

2. Kanban system

A Kanban system utilizes visual cues like colored cards and digital boards to facilitate information sharing between teams and departments. The goal is to trigger timely orders for parts and materials, limiting the buildup of excess inventory at all points along the production line.

3. Material Requirements Planning (MRP)

MRP combines information from your inventory data with your bill of materials (BOM) and master production schedule to calculate which components are needed and exactly when they will be required in order to meet—but not significantly overshoot—customer demand

4. Cycle counting

Let’s face it, nobody gets excited about annual physical counts. Plus, they’re time-consuming and may lead to significant downtime. Cycle counting allows you to continuously check and adjust inventory levels to maintain accuracy without the disruptions of an annual physical count. 

What’s the best technology for manufacturing inventory management? 

Choosing the right manufacturing inventory software can mean the difference between smooth operation and chaotic delays. Here’s a look at the primary technologies that can transform your inventory management approach and boost overall efficiency. 

Inventory management software

In industries like manufacturing that feature a vast array of complex SKUs, investing in specialized inventory management software is non-negotiable. After all, why wouldn’t you want a dashboard that provides a bird’s-eye view of your inventory across multiple warehouses? 

Dedicated solutions like Linnworks and SkuVault Core offer real-time data on stock levels, automate ordering processes, and provide analytics to help manufacturers make informed decisions. The result? No more guesswork. Just clear insights into what you have and what you need.

ERP systems 

Enterprise Resource Planning systems (ERPs) are cloud-based solutions that connect inventory management with core business processes like finance, HR, manufacturing, supply chain, services, procurement, etc. By centralizing data, ERPs help manufacturers streamline operations and improve communication across departments. 

For example, an ERP system can alert your procurement team when stock levels are low, ensuring purchasing decisions align with production schedules. Similarly, it can track production progress in real-time, allowing the sales team to provide accurate delivery estimates to customers.

Automation and IoT

The rise of automation and the Internet of Things (IoT) is revolutionizing how manufacturers track and manage inventory. Picture a manufacturing plant where sensors track material usage and communicate independently with your inventory system in real-time to trigger replenishment orders when thresholds are reached. You get minimal human error while simultaneously ensuring you never run out of critical components. Now that’s a win, win! 

What are the best practices for effective inventory management in manufacturing? 

Looking for some additional tips to help you enhance efficiency, reduce costs, and improve customer satisfaction? We’ve got you covered. Here are a few recommendations.

Conduct regular audits and reviews

Conducting periodic checks of your inventory levels helps keep your stockroom running like a well-oiled machine. By ensuring accuracy and quickly resolving issues when you identify a discrepancy, you can:

• Reduce unnecessary costs
• Reduce the risk of stockouts
• Make smarter purchasing decisions
• Optimize receiving and shipping operations
• Boost sales

Up your supplier relationship management game

Effective supplier management leads to enhanced communication, better inventory forecasting, and timely deliveries. Plus, if you play your cards right, it may even lead to improved negotiation outcomes. 

 “Building strong relationships with suppliers and sharing accurate sales forecasts have helped us improve lead times and reduce out-of-stock situations or stockpiling. This collaboration contributes to better inventory management and ensures we are better aligned with our suppliers.”

— Ryan Mckenzie, Co-Founder & CMO at Tru Earth

Go all in on inventory optimization

In addition to stock forecasting and JIT tactics with automated reordering, many manufacturers find the following strategies helpful in minimizing waste, avoiding stockouts, reducing carrying costs, and improving cash flow:

• Adjusting for seasonal variations 
• Cross-docking (where materials from incoming shipments are unloaded directly onto outbound trucks to minimize storage time).
• Diversifying your supplier base to reduce reliance on a single source.
• Experimenting with demand-driven Material Requirements Planning (MRP) to adjust inventory levels based on actual sales orders.

Calculate your inventory turnover ratio

Nailing inventory management is a bit like running on a treadmill. The faster it moves, the more belly fat (or, in this case, unwanted costs) you can burn away! Why? Because when your products move off the shelves quickly, you’re not just earning revenue. You’re also freeing up capital that would otherwise be tied up in unsold goods and saving on holding depreciation costs. 

Learn how to calculate your inventory turnover rate here! 

The best inventory software for manufacturing industry professionals

Choosing the right inventory software can dramatically transform your manufacturing operations, as evidenced by the success stories of companies like Aspire Furniture and Matman USA. Let’s take a more detailed look at how implementing innovative manufacturing inventory software helped each company address their pain points. 

Case Study 1: Aspire Furniture

Aspire Furniture faced challenges scaling its operations and managing inventory across multiple sales channels. Its existing systems were unable to provide the real-time insights needed to meet growing demand efficiently. By implementing Linnworks, the company achieved seamless integration across all sales platforms and implemented automated order processing, significantly enhancing operational efficiency.

“If we didn’t have Linnworks, we would have let a lot of people down and would not have been able to do half the things that we wanted to do. Linnworks has enabled us to free up time and have the capital to be able to invest and look into moving the business forward.”

— Matthew Gaskell, Operations Coordinator

Case Study 2: Matman USA

Matman USA struggled with inventory management across multiple warehouse locations, leading to inefficiencies and challenges in order accuracy with systems ill-equipped to handle the complexities of their operations. With the adoption of SkuVault Core, the company was able to optimize stock levels and streamline picking and packing processes, leading directly to significantly improved revenue figures.

“I look back at our eBay and our Shopify, and we’ve basically doubled sales over the last three months versus the previous three months.”

— Ben Fosnick, Head of Ecommerce

FAQs

Got lingering questions? We’ve got answers! We’ll leave you with this list of FAQs based on queries our in-house inventory experts are often asked by our manufacturing clients.

How do you calculate the value of manufacturing inventory?

The most common approach is to calculate an average by taking the total inventory value at the beginning of a period, adding it to the total inventory value at the end, and dividing by two. Alternatively, you can calculate the average inventory based on sales performance by taking the total cost of goods sold (COGS) during a specified period and dividing it by the number of days in that period.

What are the biggest challenges in managing inventory for manufacturing?

In our experience, the top five challenges most manufacturers face are inconsistent tracking, inaccurate data, lack of real-time visibility, inefficient processes, and inadequate manufacturing inventory software.

How do you organize manufacturing inventory?

Conduct proper warehouse mapping to design the most effective floor plan, ensure adequate signage for pickers, and store inventory in clearly labeled bins using dividers that divide stock by SKU. 

What’s a good inventory turnover ratio for manufacturing?

The specific answer will depend on your organization’s products and processes. However, a good target to aim for is between 5-10 times per year.

What is a WMS in manufacturing?

WMS stands for warehouse management system, a software solution companies use to manage and control daily operations. 

What is the best WMS for manufacturing?

The best systems are typically those that combine warehouse and inventory management software for manufacturing industry enterprises so teams can access all the information they need on one integrated system.