ECI Software Solution VP of Manufacturing APAC Andrew Mamonitis highlights seven common material and inventory management pitfalls, and how streamlining purchasing and inventory processes can drive efficiencies.
Inventory management struggles can lead to a variety of problems including poor customer experience, lack of visibility across departments, low inventory turns, out-of-control labour costs, decreased profitability, and ultimately, business failure.
Small to Midsized Manufacturers (SMMs) make up the bulk of Australia’s manufacturing landscape, however, these SMMs struggle to compete with their larger counterparts because they have fewer resources including personnel, technology, budget, and time.
Mamonitis said the competitive disadvantage meant that smaller manufacturers have to use their production resources as efficiently as possible in order to keep up.
“Material and inventory management is one of the most vital areas of any manufacturing business yet often needs the greatest improvement,” said Mamonitis.
To give smaller manufacturers the best chance of success and avoid worst-case scenarios, Mamonitis lists the seven most common material and inventory management pitfalls that many manufacturers face, and highlights how streamlining purchasing and inventory processes can drive efficiencies.
1. Inventory record inaccuracies
Relying on manual processes that involve physical counts and disconnected, separate spreadsheets and data systems can be highly unreliable. Companies using such methods often face a dilemma: Are missing items the result of employee negligence, fraud, or unfulfilled shipments? Is there a logistics issue in tracking the flow of inventory from procurement to the warehouse and then to shipping? To address these challenges, it is essential to implement inventory record keeping policies and processes that include regular inventory counts, maintenance, and thorough documentation.
2. Inefficient storage and receiving processes
Having limited financial, personnel, and time resources poses a significant challenge for many SMMs. Inefficient storage and receiving processes are often the root cause of costly errors, such as difficulty accessing merchandise, over-ordering, and stock shortages. This can lead to delays in manufacturing production.
3. Excess inventory
Holding too much stock and reordering materials prematurely or belatedly, represents a major source of overhead costs for SMMs. Inefficient inventory control results in unnecessary expenditure. Accurate inventory and sales data are pivotal for optimising inventory use, ordering, monitoring current sales, and planning for future growth.
4. Stocking and ordering of raw materials and product components
Maintaining the right quantities of raw materials and product components is crucial to preventing equipment downtime and preserving productivity, which is essential for adhering to manufacturing production schedules. In these environments, the implementation of technological solutions for automating the "backflushing" of materials and components is an absolute necessity.
5. Time-consuming, expensive physical inventory counts
The WMW survey revealed that 82% of companies perform scheduled physical inventory counts. Additionally, 46% conduct unscheduled spot checks, 22% employ cycle counting for specific products on a rotational basis, and 19% resort to full physical counts when issues arise. Inefficient storage, receipt processes, and inaccurate record keeping necessitate more frequent and less reliable physical counts, as compared to continuous electronic monitoring and updating.
6. Stock disorganisation, poor labelling and picking
Inventory problems often arise when items are scattered across different areas within a facility without centralised organisation. In the WMW survey, 25% of respondents reported difficulties in picking items. This results in valuable time loss when warehouse staff struggle to locate and fulfil orders promptly. To address this issue, maintain documented processes accessible to all divisions, keep warehouse maps in convenient locations, use clear signage, and label stock bins accurately with item descriptions.
7. Poor regulatory and compliance records
Accessible documentation is vital for compliance when managing pipeline inventory. In industries where this applies, a digital solution is essential for centralising inventory information.
Enhancing Material Management with Cloud-Based ERP Software
“From the warehouse employees who stock the shelves. to the accounting department that maintains the records, to the owner who analyses business performance - successful material management reverberates across the entire business and impacts every department,” said Mamonitis.
The simplest solution to avoiding inventory management pitfalls, Andrew explains, may lie in a cloud-based Enterprise Resource Planning (ERP) material management software, which integrates all business data and tracks merchandise and materials through the entire supply chain.
“Inventory forecasting is a crucial aspect of material management, and software designed for the job allows decision-makers to use historical sales data to predict future performance, assess demand levels, and optimise inventory levels.
“SMMs should fully utilise the best practices and tools that can enable them to grow through resource optimisation as this will unlock faster business decisions, improved cash flow, and consistent on-time delivery rates,” said Mamonitis.
