Inventory Accuracy for a Small or Mid-sized Manufacturing Business
This post is for manufacturers with small businesses or medium sized companies. It’s written by one of Passport Software’s manufacturing specialists, Dave Dorsey.
Dave has been involved with business software for 30 years and manufacturing software since 1995.
During this time he has had the opportunity to work with hundreds of manufacturers, who’ve made a variety of products in many different ways. We hope you find this information useful.
Inventory is a liability – from a business perspective. So how does a small manufacturer make the most of this and turn it into a positive?
With the right systems in place, procedural and software, this necessary liability can be greatly minimized. Most small manufacturing companies do not have a system in place to give them an accurate perpetual inventory.
A perpetual inventory is defined as: Keeping book inventory continuously in agreement with stock on hand within specified time periods. In some cases, book inventory and stock on hand may be reconciled as often as after each transaction, while in some systems these two numbers may be reconciled less often.
This process is useful in keeping track of actual availability of goods and determining what the correct time to reorder from suppliers might be. Sometimes also called continuous inventory. (From InvestorWords.)
Many small companies are using; a manual system, an assortment of spreadsheets, an accounting solution and in some cases “traditional” business system designed for distribution or retail, or some combination of these.
While many software systems support inventory control, the assumption is that you are buying widgets and then reselling widgets. When in fact in the manufacturing environment you are buying raw materials, converting those into some sort of subassembly (maybe with several layers of this process) and then making a final assembly to create your finished goods – which are then sold. This can be much more complicated to track and keep an accurate account of.
A true manufacturing system will give you the ability to track your inventory through every step of the process, including work in process, until you are ready to ship the product to your customer. This is critical not only for financial accuracy but also for maintaining a good level of customer service.
You also need the visibility of where your inventory/customer’s order is in the process so as to answer that nagging question “where is my order?” You need to know the right quantity of what materials are required, at what point in the process, to deliver the product “just in time” to deliver it to your customer – when they want it.
Just in Time
Just in time is defined as: An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs… (From Investorwords.com)
A good example of JIT (Just in Time) would be a car manufacturer that operates with very low inventory levels, relying on their supply chain to deliver the parts they need to build cars. The parts needed to manufacture the cars do not arrive before nor after they are needed, rather they arrive just as they are needed.
This inventory supply system represents a shift away from the older “just in case” strategy where producers carried large inventories in case higher demand had to be met.
In today’s economy a small manufacturer can’t afford to keep extra inventory on hand as a buffer just in case you need it. You also can’t afford to have dissatisfied customers. It is often said that it takes the good will of 20 customers to make up for one unhappy customer.
Probably the biggest edge a small manufacturer has is ability to move quickly to take advantage of a new opportunity. However you must have accurate systems and procedures in place.
The right manufacturing software for a small company will help create and support a perpetual, Just in Time inventory reflecting accurate real-time transactions.
With the proper solution you can; run more lean, provide better customer service, and reduce redundancy, cut down on errors, save time and increase profits. The right combination of software and services should mirror your business processes and be able to provide a return on investment easily within a year.
Learn more about our manufacturing software for small businesses and medium sized companies.
For more information you can reach Dave at firstname.lastname@example.org or 800-969-7900 x145. Or Contact Us – We are here to help.