What is Manufacturing Inventory? Types, Examples and Best Practices

Manufacturing inventory plays a crucial role in the production process of any manufacturing business. Without the right amount and type of inventory, a manufacturer risks production delays, increased costs, and missed sales opportunities. In this article, Viindoo Enterprise Management Software will explore the different types of manufacturing inventory and provide examples of each.

What is Manufacturing Inventory? Types of Manufacturing Inventory

Manufacturing inventory is an essential component of any manufacturing business. It refers to the raw materials, work-in-progress, and finished goods that a manufacturer holds in stock to support its production process. 

  • Raw materials are the materials a manufacturer needs to produce its products, such as metal, plastic, or wood. 
  • Work-in-progress inventory refers to the partially completed products in the manufacturing process, such as partially assembled cars or partially fabricated electronic components. 
  • Finished goods inventory refers to the final products that a manufacturer produces and holds in stock, such as appliances, vehicles, and electronics.
What is Manufacturing Inventory?

What is Manufacturing Inventory?

Why You Need Manufacturing Inventory

Effective management of manufacturing inventory is crucial for a manufacturer's success, as it ensures that the business has enough stock to meet customer demand and stay competitive in the marketplace. 

To efficiently manage and optimize manufacturing inventory, many businesses have utilized manufacturing inventory management software to track inventory levels, generate reports, and automate purchasing and reordering processes.

Why You Need Manufacturing Inventory

Why You Need Manufacturing Inventory

Manufacturing inventory is an essential component of any manufacturing business. The right amount and type of inventory are critical to ensure that a manufacturer can meet customer demand promptly. Without sufficient inventory, a manufacturer risks production delays, missed sales opportunities, and reduced customer satisfaction. 

For instance, if a manufacturer experiences an unexpected surge in demand and does not have enough inventory to meet that demand, the business may lose customers to competitors who can fulfill orders faster.

Another benefit of manufacturing inventory is that it allows a manufacturer to take advantage of bulk purchasing discounts. By maintaining sufficient inventory levels, a manufacturer can avoid stock shortages and reduce the risk of having to purchase materials at higher prices due to supply chain disruptions.

Having a robust manufacturing inventory system also enables a manufacturer to respond quickly to unexpected changes in customer demand or supply chain disruptions. 

For example, if a supplier is unable to deliver raw materials on time due to a natural disaster or other unforeseen event, having inventory on hand can help the manufacturer to continue production without any significant disruption to its operations. 

Similarly, if a sudden drop in demand occurs, a manufacturer can reduce its production output and adjust its inventory levels accordingly.

>>>>> Related content: Manufacturing Inventory Management Excel Template [Free Download]

Manufacturing Inventory management techniques

Effective manufacturing inventory management involves a variety of techniques that help manufacturers optimize their inventory levels to minimize costs and maximize efficiency. Some of the most common inventory management techniques used in manufacturing include FIFO, LIFO, and Just-in-Time (JIT) inventory management.

FIFO Inventory management technique

FIFO (First In, First Out) is a method of inventory management in which the oldest inventory is sold or used first. This approach is particularly useful for businesses that deal with perishable or time-sensitive products. 

Manufacturing Inventory FIFO

Italic Center

By using FIFO, a manufacturer can ensure that their oldest inventory is used or sold before it expires or becomes outdated. This technique also helps manufacturers to avoid the cost of disposing of expired or unsold inventory.

LIFO (Last In, First Out) warehouse management technique

LIFO (Last In, First Out) is another inventory management technique that involves using the most recently acquired inventory first. LIFO is often used to minimize tax liabilities, as it allows businesses to expense the most recently acquired inventory, which is typically the most expensive due to inflation. LIFO is less commonly used in manufacturing than FIFO due to the potential for increased inventory carrying costs.

Just-in-Time (JIT) 

Just-in-Time (JIT) inventory management is a technique that involves ordering inventory just in time for production or sale. This approach is designed to minimize inventory carrying costs and reduce the risk of stockouts. 

Manufacturing Inventory Just in Time

Manufacturing Inventory management with Just in Time technique

JIT relies on accurate forecasting of demand and efficient supply chain management to ensure that inventory arrives when needed. While JIT can reduce inventory carrying costs, it can also increase the risk of stockouts if demand exceeds expectations or supply chain disruptions occur.

Manufacturing Inventory Best Practices

Implementing effective inventory management techniques is crucial for any business that wants to run efficiently and effectively. By adhering to the following inventory management best practices, a manufacturer can optimize their inventory levels, reduce costs, and minimize the risk of stockouts or excess inventory.

Implement batch tracking

Batch tracking, also known as lot tracking, is a method used to trace goods along the distribution chain by assigning batch numbers to the products. A batch typically refers to a specific set of products that were produced together and use the same materials. 

Manufacturing Inventory batch tracking

Implement batch tracking

Implementing an automated batch tracking system is an efficient way to enter and store information about each product within a batch. This information can be easily accessed if needed, such as in the event of a product recall. 

By utilizing a batch tracking system, manufacturers can ensure efficient and accurate tracing of their products throughout the supply chain, providing greater transparency and reliability to their customers.

Conduct demand forecasting

Accurate demand forecasting is one of the most crucial elements of effective inventory management. By accurately predicting customer demand, manufacturers can avoid stockouts or excess inventory, which can lead to increased carrying costs and missed sales opportunities.

Implement Demand forecasting

Conduct demand forecasting

Effective ways to forecast customer demand are:

  • To analyze historical sales data: By studying past sales trends, manufacturers can identify patterns, seasonal trends and fluctuations in demand and adjust their inventory levels accordingly.
  • To consider market trends, customer feedback, and external factors such as changes in the economy or the introduction of new products by competitors. 
  • To continuous monitor and adjust: By staying on top of the latest trends and regularly updating their forecasting models, manufacturers can optimize their inventory levels and ensure they have the right amount of inventory to meet customer demand while minimizing costs.

Implement ABC analysis

ABC analysis is a commonly used method in manufacturing inventory management that involves categorizing items based on their importance and value to the business. The ABC analysis divides inventory into three categories - A, B, and C - based on the items' sales volume, revenue contribution, and overall importance to the manufacturing process.

Manufacturing Inventory ABC analysis

Implement ABC analysis

  • "A" category: high-value items that have a high sales volume and contribute significantly to the company's revenue. These items require close attention to ensure a consistent supply and prevent stockouts.
  • "B" category: items that have a moderate value and contribute less to the company's revenue than A items. 
  • "C" category: low-value items with high sales frequency that have a low sales volume and contribute little to the company's revenue. 

By using the ABC analysis, manufacturers can prioritize their inventory management efforts and allocate resources accordingly. This method allows manufacturers to focus on the most important items while minimizing the resources spent on less critical ones.

Manage your Manufacturing Inventory with Viindoo

Viindoo Inventory and Viindoo Manufacturing are two essential components of the Viindoo ecosystem. While Viindoo Inventory is a powerful inventory management software, Viindoo Manufacturing, on the other hand, is a comprehensive manufacturing management system that covers all aspects of the manufacturing process, from planning and scheduling to production and quality control.

Manage your Manufacturing Inventory with Viindoo

Manage your Manufacturing Inventory with Viindoo

With Viindoo, businesses can benefit from a complete manufacturing inventory management solution. The integration allows:

  • Real-time synchronization of inventory levels and production processes, enabling manufacturers to keep track of inventory levels at all stages of the manufacturing process.
  • Automated production orders and accurate inventory updates
  • Detailed reports and analytics to optimize their inventory management processes and streamline operations
  • Removal Strategy such as FIFO (first in first out), LIFO (last in first out), FEFO (first expiration first out).

In summary, Viindoo provides a complete solution for manufacturing inventory management. The software's powerful features, such as real-time synchronization, accurate inventory tracking, and detailed reporting, allow manufacturers to optimize their inventory levels, streamline their operations, and ultimately, improve their bottom line.

What is Manufacturing Inventory? Types, Examples and Best Practices
Công ty Cổ phần Công nghệ Viindoo, Nguyễn Anh Thư 10 April, 2023

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Manufacturing Inventory Management Excel Template [Free Download]