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5 Best Ways Manufacturers Can Improve Their Raw Material Inventory Management

5 Best Ways Manufacturers Can Improve Their Raw Material Inventory Management

Most manufacturing firms struggle to manage their materials inventory. One of the pressing problems of manufacturers is that they have a lot of money trapped in their inventory. More importantly, it’s a challenging task for most manufacturers to figure out how to manage their inventory.

Raw Material Inventory Management
Raw Material Inventory Management

One of the best ways to address this issue is by investing in materials management software. Anyway, you will learn five different ways how manufacturers can manage their raw material inventory effectively. Here is a quick overview of the actionable ways:

  • Apply the 80-20 Rule
  • Figure Out What Drives Demand
  • Monitor Supplier Performance
  • Eliminate Complexity
  • Just-in-Time

How Manufacturers Can Manage Inventory Effectively

Excess or lack of stocks can be detrimental to manufacturing firms. Here, you can learn the five best ways how you can improve your material inventory management.

Apply the 80-20 Rule

Are you aware of the 80-20 principle? This rule can help you manage your manufacturing firm’s inventory effectively. To put this rule simply, 80% of your revenue will generate from 20% of your inventory. Again, 20% of your revenue will come from 80% of your inventory.

Is it confusing? Let me simplify it. You should focus on the items that drive a major percentage of your revenue. So, prioritize the 20% that brings more revenue to your business. A small improvement in these items can bring a major impact on the business. Hence, you should start with those items that drive 80% of your revenue.

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Figure Out What Drives Demand

Remember, inventory demand isn’t always random. There are certain factors that drive the demand, so you should figure out what drives the market demand. The more you understand the facts that drive the demand, the better you can forecast.

When you understand those factors, you can get a more accurate forecast demand that will help you store safety stocks. As a result, it can eliminate the random factors and provide a stable demand which will make the inventory management process easier to manage.

Monitor Supplier Performance

Most of the time, manufacturers suffer due to unpredictable raw material supply. Most manufacturers focus on erratic market demand and ignore supplier variability. For effective management of inventory, it’s equally even more important to focus on monitoring supplier performance than forecasting market demand.

So, it’s important to track the performance of your suppliers. After that, you should address which areas need improvement. Based on the data, you should replace non-performing suppliers with better suppliers having an excellent track record. In this way, you can better manage your raw material inventory.

Just-in-Time

Next, you need to focus on an active inventory management system. It’s a common problem that you may forget about active stock management while focusing on supplier performance. There are different ways, such as; Just in Time, Consignment tasks, and Kanban Scheduling.

Here also, you need to apply the 80-20 principle. That means you need to focus more on the most important materials, components, and major suppliers. This is where your investment in the active inventory management system will return the greatest return.

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Reduce Complexity

Finally, you need to reduce complexity from your inventory management system. The more complex your inventory system is, the less effective and efficient it will be. So, you should try to eliminate complexity from the system. Offering too many products add more complexity to the inventory management system. So, you need to focus on product variants that generate major revenue.

Here again, you can apply the 80-20 principle to focus more on 20% of your product variants that drive more sales. However, that doesn’t mean you should immediately control the 80% of your product that drives low revenue.


The Bottom Line

Although the above steps are useful, it’s better to invest in a good manufacturing inventory management system. An automated system can handle the inventory more efficiently with reduced errors, greater accuracy, and faster processing. It will not only improve the performance but also reduce storage costs and increase revenue.

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