Proper inventory management is a critical part of any business that manufactures goods. Having too much inventory can take up resources like capital and warehouse storage but too little inventory can lead to longer lead times for customers and lost revenue for the company.
To effectively manage inventory, most companies have a set of systems and processes in place. This blog can be used as a guide to understanding inventory management for engineered-to-order (ETO) businesses, why it is important, the issues that may arise if it is not done well, and the software that is available to assist in inventory management.
What is inventory management?
To begin to have a thorough understanding of inventory management, it is important to understand exactly what inventory is.
In its simplest form, inventory can be defined as all of the items a business uses that are intended to be sold. Some businesses only have inventory that is made up of completed products while businesses that operate on an ETO model keep inventory that consists of the parts and pieces used to make up the finished product that they manufacture. Inventory can be any of the following:
- Raw materials – These are smaller components used to make finished products (End of Arm Tooling, part fixturing, automation components, etc.)
- Work-in-process – Any items that are in the process of becoming finished products
- Finished goods – Fully finished products that are ready to be sold
Inventory management is the systematic process of sourcing, ordering, storing, and selling company goods to customers. Different businesses will have different goals when creating their inventory management systems. At COUNTERPART®, we focus on the following:
- Efficiency – COUNTERPART® directly integrates with SOLIDWORKS® so there is no longer a need to export bills of materials (BOMs), use spreadsheets, or manually enter data into your ERP.
- Visibility – users are able to easily see the items ordered per job to plan for future orders.
- Collaboration – COUNTERPART® allows for communication between departments through a single app.
- Profit growth – the ease of workflow and efficiency of COUNTERPART® allows for companies to produce more at a faster rate.
Proper management of inventory can save time, money, resources, and a lot of headaches on every level of a business but also helps ensure customer satisfaction.
Inventory Management for Engineered to Order
Inventory management in ETO products is critical because custom parts and assemblies require dedicated and specialized parts that are not interchangeable with other goods. Accurate management of inventory throughout the production and assembly processes helps to prevent these parts from being lost, misplaced, or mixed up with other parts. A solid inventory management process also keeps the production schedule on track.
In manufacturing businesses, it is important to track your raw materials. It is also important to keep track of production data (like the number of products being produced), any waste, the time it takes for materials to be replaced, and the time it takes to make the finished product.
The Essentials of Inventory Management for Manufacturing
When the business is small, it can be easy enough to manage all parts of inventory movement by hand (or spreadsheet). But the more your business grows, the less this “tried and true” system works. So what are some of the essentials for managing manufacturing inventory?
Inventory Location Tracking
Inventory location tracking helps you keep track of where components of your inventory are at any given time. It is important, for efficiency’s sake, to implement a system that can show you where your inventory is located so there is no time wasted by searching for components that are not where they should be.
Inventory location tracking can be easily automated. For example, the COUNTERPART® system tracks locations by having a list of predefined locations in the settings, including anything from shelves to desired individuals. The locations are customizable and are setup during implementation to be specific to the company in question. The system then tracks where components are routed between locations as their path to being procured, picked, or manufactured is followed. The result is visibility to the users of where the component is located at each step of the process up until it is added to the final product.
Reorder Points
Reorder points let you know when it is time to order more stock so you can avoid instances of being completely out of a product or material. These are simple fail-safes that can be put into place to ensure the right amount of inventory is always available. When the stock level reaches the reorder point, you must order more inventory immediately. This is a process that can be easily automated when certain inventory management solutions are implemented.
Inventory Management Software
The days of manually entering inventory have long passed. Inventory management software has become especially useful in manufacturing businesses because there are so many moving parts involved in their processes. When choosing software, manufacturing companies should ask these questions:
- Can this help manage team assignments and goals?
- Will this allow us to allocate materials to priority orders to minimize the amount of work-in-process goods being assembled at once?
- Will this software integrate with our current systems (like QuickBooks and SOLIDWORKS®) seamlessly?
Your needs will be different than the needs of other manufacturers. It is important to do your research and find the right software for your business.
Problems Caused by Improper Inventory Management
Improper inventory management can cause migraines for a business and its customers. Some of the issues caused by poor inventory management can include:
- Wasted time
Too much time is taken on tasks that could have easily been completed if a proper inventory management system was in place. For example, manually entering each part used in a project into a spreadsheet instead of using a software that allows you to easily track the needed parts as CADs are being made.
- Decreases in employee productivity
When workers are doing repetitive tasks that could easily be automated or are constantly waiting around for the right parts and pieces to arrive, their productivity decreases. - Increases in costs
In cases when there is too much inventory on hand, warehouse costs increase. You will also find yourself needing to spend extra time and money to maintain that overstocked inventory to ensure it can be used for its intended purpose. This forces businesses to either increase the price of products in order to keep their profit margins or eat the costs themselves and lose money. - Ineffective decision making
A lack of proper inventory management can make it hard to analyze trends and predict future inventory needs. This can lead to either overstocking or stockouts. It can also lead to a misunderstanding of what a company’s customers’ needs are. - Unsatisfied customers
Getting deliveries on time and receiving high-quality products are the top priorities of customers. Lack of proper inventory management can cause delays in production which can mean that customers either do not get their order on time or will receive a product that was rushed in order to meet their timeline. When these things happen, customers begin to lose faith in manufacturers and may look elsewhere for future needs.
Inventory Management Software for Total Inventory Control
As a business grows, it can become more difficult to manage inventory. At a certain point, manually entering inventory into a spreadsheet becomes obsolete. It can leave too much room for error and you run the risk of it not being kept up-to-date. Most manufacturers end up adopting an Enterprise Resource Planning (ERP) system.
There are plenty of ERP systems out there. Most of them are designed for mass production, focused on the accounting aspect rather than the engineering and design aspect, or use third-party systems to communicate with the CAD system.
The COUNTERPART® software is an intuitive, easy-to-use ERP solution that was created to encourage a more productive work environment. The software suite works with SOLIDWORKS® as an add-in and integrates with PDM (Product Data Management). The result is a stable system with greater visibility that reduces costs and increases productivity and profits.
COUNTERPART® can be used in inventory management to:
- Easily identify the correct component using our visual inventory
- Lookup orders and history for all components
- Configure cycle count groups and counting methods
- Track component location – even when someone keeps it at their desk
- Sort and filter your pick list for your specific need
- Fully integrate with existing software like SOLIDWORKS® or QuickBooks
- Communicate with engineering, manufacturing, and purchasing departments to ensure up-to-date and accurate inventory reports
While eliminating the need for:
- Exporting BOMs
- Using spreadsheets
- Manually entering data into your ERP
Proper inventory management without a solution system like COUNTERPART® relies heavily on every person or department constantly communicating every bit of information (down to the smallest details) during every step of the production process. It leaves much room for human error. Tiny mistakes can cause delays and put a damper on customer satisfaction.
With the proper tools in place, managing your inventory can be a breeze. Let COUNTERPART® help you make inventory management migraines a thing of the past.