Inventory management is a critical task for any manufacturing company. It will help you understand what you have in your warehouse—along with when, what, and how much stock to order to continue production. Inventory management also helps you understand what your customers are ordering, what you have in stock ready to ship, and what you need to make to continue filling orders.

Holding inventory in the warehouse is an expense in itself: it ties up resources in raw materials and in the space needed to store finished product. The less inventory you need to have on hand, the better for your bottom line.

With many tools on the market for managing inventory as part of a larger warehouse management system, it can be difficult to decide what to use, or why you need a warehouse management system. In this post, we will pose and answer questions to help you make the right decisions for your enterprise or facility.

Benefits of Inventory Management

With inventory management, you will be able to fulfill incoming orders by managing your raw material inventory. You’ll also understand how your finished products are filling orders, so you can optimize your manufacturing operation to meet demand.

In addition, inventory management helps you:

• Save Money

  By knowing what’s on hand, you can optimize production by selling what you have in the warehouse first, before triggering production runs to replenish stock. Understanding the flow of products through the warehouse helps save money since you won’t need to produce goods until they are ready to be sold. This decreases the direct costs tied up in inventory, and reduces the amount of unsold stock you are storing until it is sold, or—in the worst case—until it goes bad.

• Improve Cashflow

  By understanding how your inventory is utilized, you can optimize spending and sales—and avoid using resources for stagnant product on the shelves.

Inventory Management Hurdles

Inventory is a double edged sword—much like manufacturing companies with capacity or market constraints. (Which are either unable to produce as much as they can sell, or can’t sell everything they could possibly make.) One challenge comes from too much inventory sitting on the shelves that you are unable to sell. The other problem is not having enough inventory as orders demand. To make matters worse, both of these problems are compounded when you don’t know what inventory you have or where it is located.

While these may seem like easy problems to solve, the first step is to get an accurate assessment of your current stock, including quantities, qualities, and location.

Once you understand everything you have in inventory, you need to understand if you have good processes in place to manage it. You must also determine if those processes are error-prone, which will cause more headaches down the line.

Understanding your market and customer demand is also extremely important, since changing customer demand can impact your future production. If tastes change and the inventory you have on hand becomes obsolete, you will need to manage it before it impacts your bottom line.

Finally, a good inventory management system can help you optimize your warehouse space. Inventory management makes it easy to locate product and pick orders—and ensure that you can move product through your doors as efficiently as possible.

Tools for Managing Inventory

If you were to draw a Venn Diagram of all of the software tools available to a manufacturing organization, you would find Inventory Management right at the center.

Inventory Management is a significant piece of the Warehouse Management System puzzle. It is also part of the functionality handled by an ERP system. It can impact production scheduling, shipping and receiving, customer service, and can even tie into an overall supply chain management system. For most companies, demand planning and trend forecasting are also an important part of inventory management.

With all of these various tools available, you need something which can easily integrate with all of them for a clear picture of your operation. This is where a product like Ignition by Inductive Automation comes into play.

Most of the software you use to run your business has a database behind it. This is true of ERP systems, Warehouse Management Systems, production scheduling tools, and customer service software. Ignition can connect to all of these databases behind the scenes, while giving you a seamless operator interface for managing everything. This is exactly what we did for Blommer Chocolate when they needed a single software package to connect all of their enterprise level business systems. Ignition became the glue connecting all of the different systems, enabling inventory management across the entire organization.

Granted, a large part of this project was possible because Blommer Chocolate did internal work on their processes and procedures. They worked out all of the procedural bugs before we started building technology to make their lives easier.

Inventory Management Processes

Inventory Management Processes need to focus on two areas. While the two areas are separate from a business process perspective, they are linked by your production process. The first area manages raw material inventory for the products you need to make. This inventory is informed by customer service and the demand for your product. Raw materials inventory also overlaps and interact with accounts payable, production scheduling and plant floor operations. The second area is finished goods—both in your warehouse and coming off the line. This second area overlaps with quality control, shipping and receiving, and accounts receivable. Depending on your SKUs and overall demand, this may also impact production scheduling as you may have enough inventory in stock to fulfill the current demand for a product, without needing to produce new goods right away.

It’s critical to understand how these processes interact. We can (and have) helped many companies understand their businesses—and how their processes currently exist, and can be improved—along with the addition of inventory management technology. Instead, many companies are already focused on inventory managment and have a plan in place before they reach out for help implementing new technology.

These processes may also impact operations. While knowing that there’s enough raw material in the warehouse for a given production run is great, it’s better to also have a process to understand how much raw material you need at any given workstation or production line—and when it must be there to meet the production schedule. This is a critical function of any facility using Automated Guided Vehicles (AGVs).

This is where operations and inventory management overlap. For example, at Blommer Chocolate we correlated the current shift’s production schedule along with the at line raw materials. We would generate an alert for an upcoming product change, or raw material shortage on the line. This information was based on what had been previously picked and consumed by the process. The alert would trigger a pick order sent to the forklift operator in the warehouse. The pick order would list any material that needed to be picked back up from the line and taken to the warehouse—along with an order to pick material for the next batch to take back to the line.

By knowing what we picked from the warehouse and what was used on the line, we were able to accurately forecast which ingredients would be needed, when they were needed, and where they needed to go. By integrating the plant floor process with the warehouse management system and the inventory management system, we were able to streamline overall ingredient management and hit production schedules with much greater accuracy.

Tracking Inventory Management Performance

As with any other business process, measurability is important for improving over time. Inventory Management is no different.

While we could spend days in meetings discussing the best KPIs (which will be different, depending on your industry and how you operate) for inventory management, we have found an excellent Inventory Management KPI resource on the NetSuite ERP website. It lists dozens of different KPIs for all areas of business related to inventory management.

We can easily speak to how to measure, display, and report on them. Then, we can use a tool like Ignition to build dashboards for tracking these KPIs in as much detail as you want. We are happy to give you a demo to show you how we have handled measuring business processes in the past. Just reach out and let us know!

What Comes After Inventory Management?

Once you have an Inventory Management System in place, you can easily leverage it to help manage complex tasks. A common tool—especially useful in Food and Beverage manufacturing where recalls happen—is a Track and Traceability System. This system ties into your raw material and work in progress inventory systems to track what ingredients went into which batches. Then, should recalls, ingredient issues, or production problems occur, you can easily track down any products or batches which might be negatively impacted.

A Notification System along with your Inventory Management System is a powerful tool which can alert your customer service team when product inventory is low and there might be fulfillment issues. Production scheduling can also be alerted when you need to make more products. And your purchasing team can be alerted when they need to order more raw materials.

Building on the last piece, integrating your Inventory Management and Production Scheduling Systems can provide you with a huge opportunity for streamlining your operations and production requirements. Potentially, you may be able to move closer to a Just In Time Manufacturing approach to limit the resources you have tied up in inventory across the board.

Wrapping Up

Inventory Management is a powerful piece of the overall Manufacturing Execution System technology stack.

It is a tool you can integrate with any facet of your operation. Inventory management systems can provide powerful insights into your business, your customers, and how to better utilize your resources.

We have worked with many companies to implement Inventory Management systems and have had great success with the Ignition platform.

If you would like to discuss how your process could benefit from implementing an Inventory Management System, please reach out and let us know!