Cash is king for manufacturers, from the owner down to the machine operators. If you visit any manufacturer, you’ll see that most have a keen eye on how everything is being used. Machines are generally only running if they are making parts; employees are typically only working if orders are coming in; and scrap is only examined carefully to determine, “How did this happen? How can we prevent it from happening again? What else can we do with this?”

Even the best manufacturers make mistakes. But rarely do they make the same mistake twice. If you ask them what some of their biggest mistakes have been, the answer is often about inventory management—that is, if it’s in the past and they’re now doing something different.

What’s different? After speaking with many manufacturing owners and many subject matter experts, the difference is that their business is choosing to live and die by the following 10 inventory must do’s with the help of ERP software.

1. Clear out the inventory garbage

This means you must process your inventory correctly and consistently with no exceptions. Your inventory processes should be documented and employees trained, retrained, and trained some more. And you should have absolute consistency in things like your product lines and units of measure.

Documenting your process also means knowing explicitly who owns what, including inventory master, inventory costing, and inventory quantity. Everyone should know what they are doing, when, why, and the consequences of it being done incorrectly.

And don’t let the fox guard the henhouse. The employee responsible for transaction processing can’t have access to inventory adjustments. A few hours spent training employees will save you money and heartache (and maybe even a lost customer) when you try to make a part with inventory you don’t have. For much better results, clear the garbage out of your inventory.

‘We know exactly where every piece of material is 100% of the time. With live inventory transactions, forklift operators can see actual on-hand inventory numbers and location on the go.’
—Chad Wengerd, IT manager, Walnut Creek Planing

2. Regulate your inventory counts

Physical inventory or cycle counts should be performed regularly and produce accurate numbers. Implementing regular inventory counts enables you to consistently ensure inventory accuracy throughout the year.

Manufacturers can complete this in one of two ways. First, they cycle count daily or weekly, which means they count parts based on use or dollar amount to verify that their inventory is correct. If their numbers need adjusting, that means their inventory is off, and they must figure out what inventory transactions are causing the issue. The second way is by doing physical inventory, which calls for shutting down the shop floor and counting the inventory one weekend a year, sometimes two.

To learn more about this, read subject matter expert Brady Steven’s white paper, “How to Achieve Perfect Physical Inventory in 10 Easy Steps.” It’s a great, super-fast read that’s likely to save you thousands of dollars a year.

3. Evaluate unused inventory

Just like clutter in your home, obsolete or low-turn inventory should be evaluated regularly, not just once a year. Inventory takes up space, and space is money. If something is taking up space and not moving, it’s taking away an opportunity for something that you could be selling to bring in more revenue for your company.

4. Know your business trends

Keeping your inventory labeled is an important step in controlling it between physical inventories. Be “hip” with your business. Reorder, lead time, and order quantity should be reasonably accurate and should be evaluated regularly (and again, this doesn’t mean once a year).

You know your business better than anyone, and knowing when spikes occur throughout the year allows you to better plan on seasonal changes in your inventory. If your business is seasonal, you may need to adjust your minimum/maximum quantities throughout the year as well. A great way to evaluate these data is to use key performance indicators (KPIs) for your business.

‘Everything we manufacture now goes through inventory. When putting together a quote, we can go back through inventory to see if we’ve done that particular job before. This gives us a much better idea of how to quote the job going forward.’
—Alan Lowe, general manager, HMC Instrument and Machine Works Ltd.

5. Research your vendor’s competition

Your vendors win when you get lazy. So it’s OK to pick up those pesky sales calls every once in a while. Listen to the vendor’s sales pitch and what they have to offer in the way of pricing and quality rating. You might be surprised by what they have to offer. If you stick with the same vendor year after year, you may not receive the best bang for your buck. Prices creep up slowly and steadily, and then your discounts vanish.

Evaluate cost regularly and don’t ignore savings on buying items in bulk when appropriate. This can be an opportunity for blanket orders to come into play with your vendors, and you’ll receive a discount by planning ahead. But remember, this requires you to know your business trends and when those seasonal spikes occur.

6. Automate as much as possible

If job-costing is a full-time job, then you probably have inventory issues. With a job-costing accounting application, you can spend less time worrying about what your finished goods cost and more time on creating a quality product. Good job-costing leads to accurate inventory cost and quantity, providing you with an opportunity to automate part or all of this process every year.

7. Record your inventory flow

You are what you eat. As inventory is consumed or shipped, it must be recorded.

Some of Global Shop’s customers manage this process with one person, a team of people, or they let their machinist move the parts. That’s entirely up to you, and you can decide who manages that process based on the type of material and your employees’ skills.

The inventory flow process is:
• Issue material to work order
• Bin-to-bin transfer
• PO receipts
• WIP (work in progress) to finished goods
• Location transfers

You also have the option of backflushing and auto-WIP. If you make it to the last step and you have 10 good parts, then 10 parts are WIP’ed into inventory (finished goods). Spend a few minutes every time and record inventory flow immediately, and you’ll save yourself hours in the long run.

‘I’m constantly using the inventory application to monitor open orders, labor dollars, estimated vs. actual, and inventory levels. Every day I pull stats from the software regarding our customer mix, dollars shipped, and parts from inventory vs. parts not from inventory, which helps me understand where our inventory levels need to be.’
—Ray Suprenant, president, Davico Manufacturing

8. Listen to your business with ERP

Hearing is involuntary, but listening is something you choose to do. A fully integrated ERP system with material requirements planning (MRP) functionality will help you move past hearing to listening.

Manufacturers who use an ERP system correctly are faster, smarter, and more profitable than those who don’t. Listen to your business by viewing and analyzing the data your ERP system provides to see trends, view roadblocks, and make better business decisions. Using your business intelligence application, KPI application, and dashboards, you can see inventory detail in real time and listen closely to your inventory.

9. Correct employee mistakes immediately

In manufacturing, loose lips don’t sink ships. They save them.

Employee attitude and participation is the icing on the cake. If an employee or machine isn’t doing something correctly, don’t let it sink your ship. For example, if you see Jane Doe routinely recording inventory, but she always misses a few parts, your inventory counts will continuously be off, and you’ll be spending more money purchasing inventory you don’t need. Speak to a manager or superior and let them know your concerns about the issues you’re witnessing. Speak up and refer to must-do No. 1—Clear out the inventory garbage.

Honesty is the best policy, especially when there’s money involved. By addressing inventory mistakes early on, you reduce the risk of losing money, inventory, and production time.

10. Always ask questions

Don’t guess how to do it—ask someone. Don’t let the fear of asking a “dumb” question keep you from managing your inventory correctly and making money for your business.

Published by Global Shop Solutions.