The 10 Inventory Must Do’s for Small to Medium-Sized Manufacturers

Most manufacturers know cash is king – from the owner on down. Don’t believe me? Visit any manufacturer for an afternoon, and you will see 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 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 manufacturing owners make mistakes. But rarely, do they make the same mistake twice. If you ask them what some of their biggest mistakes have been, often it is tied to how they handled inventory. Notice the tense of that word – handled. Meaning, that was in the past and they are doing something different today.

What is different? After speaking with many manufacturing owners and many subject matter experts such as Kirk Rick, Rhonda Gieza, and Maria Gray, the “different” is their business is choosing to live and die by the following 10 inventory must do’s:

1. Garbage in, garbage out. What does this mean? Well, it 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 your product lines, units of measure, etc. 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, why, and what happens when they don’t do it right. And don’t let the fox guard the henhouse, meaning the employee responsible for transaction processing cannot 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.
2. Get regular. Physical or cycle counts should be done on a regular basis and be accurate. If you can’t get your physical inventory or cycle counts accurate then don’t even bother doing them.
3. What’s hot and what’s not. Obsolete inventory or low turn inventory should be evaluated on a regular basis (and this doesn’t mean just once a year). Inventory is money and space is money. If something is taking up space and not moving that is taking away an opportunity for something that you could be selling.
4. Be hip. Know the trends in your business. Reorder, lead time, and order quantity should be reasonable accurate and should be evaluated on a regular basis (and again, this doesn’t mean once a year). You know your business better than anyone and knowing when spikes occur allows you to better plan on seasonal changes in your inventory. If your business is seasonal, you may need to adjust your min/max quantities throughout the year. A great way to evaluate this data is to be using Key Performance Indicators for your business.
5. Foster competition. Your vendors win when you get lazy. Prices slowly and steadily creep up and your discounts suddenly vanish. Evaluate cost regularly (and again, this doesn’t mean once a year) and do not 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 will receive a discount by planning ahead. But remember, this requires you to be hip and know your business and when those seasonal spikes occur.
6. Almost automatic. If job costing is a full-time job then you probably have inventory issues. If rule #1 is followed good job costing will follow leading to accurate inventory cost and quantity.
7. You are what you eat. As inventory is consumed or shipped it needs to be recorded. Do not push it to later or plan to do it tomorrow. Spend the time and do it immediately. That’s all I have to say about that (thanks Forrest).
8. Don’t just hear, listen. Hearing is the act of perceiving sound, but listening is something you choose to do so your brain processes meaning from words and sentences. Move beyond “hearing” with your fully integrated ERP system with MRP functionality and “listen”. Manufacturers that are using an ERP system correctly are faster, smarter, and more profitable than those that don’t. It isn’t a question, it is truth. And here are 150+ case studies to prove it.
9. Loose lips don’t sink ships. Employee attitude and participation is the icing on the cake. If someone isn’t doing something correctly, don’t let the ship sink. Speak up and refer to #
10. When in doubt. Don’t guess how to do it – ask someone.

Adam Grabowski is the Director of Marketing for Global Shop Solutions. He is responsible for strategically positioning the company and its ERP software product to make existing customers more successful and compete for new business opportunities in the manufacturing industry.