If the phrase “inventory control” dredges up bad memories, you’re not alone. Also called stock control, balancing your business’ inventory levels is vital for keeping costs in check.
Why inventory control matters for an Aussie manufacturing business
Some manufacturers think inventory control is overrated. Our guess? If you’re reading this, you’re one of the clever ones who know the value of a stock control system.
There’s an art to inventory control. But there’s also a science to solving the stock problem. That’s what we’re diving into in this blog.
Let’s take stock: quick-fire questions on inventory control
Are inventory management and inventory control the same thing?
Inventory control and inventory management are separate but closely related. Inventory management involves more moving parts – purchasing, production forecasts, waste material and sales figures, to name a few.
What are the 4 types of inventory?
1. Raw materials (RM)
2. Work in progress (WIP)
3. Finished goods (FG)
4. Maintenance, repair and overhaul (MRO)
What are the costs associated with poor inventory control?
Holding Costs:
Storage space is valuable. Taking up too much of it with overstocked material restricts usable space, plus risks spoilage or obsolescence.
Shortage Costs:
Understocking material or products means you risk running out. From idle employees to missed deadlines, the consequences aren’t pretty.
Popular inventory control methods in Aussie manufacturing
Just-in-time (JIT)
As the name suggests, JIT inventory control involves warehousing just enough of something so stock levels are depleted just in time for the next shipment. This can be great for identifying low-demand stock. But miscalculations or disrupted deliveries can leave you high and dry at the wrong time.
We all remember the COVID-19 toilet paper panic, right?
ABC inventory control
More a classification method than pure inventory control, ABC puts stock and materials into 3 categories:
- A-level: high value and high demand. Typically the top 20% of manufacturing materials that contribute 80% of sales.
- B-level: slightly less valuable, but still worth keeping close to hand.
- C-level: the bottom performers that don’t sway sales figures too much.
Fixed quantity
A no-stress way to ensure you always have essential materials on hand is to trigger an order automatically when stock dwindles to a predetermined level. This is fixed quantity inventory control, and an ERP system for manufacturers like Jobman can handle the details.
Minimum/maximum stock levels
Like fixed quantity, min/max inventory control triggers an order for the maximum stock you can store when warehoused material hits the minimum acceptable limit. Some manufacturers think min/max is risky because you might be waiting on material. But Jobman’s forecasting and inventory management tools alleviate these risks.
Two-bin system
Bin 1 holds most of the stock you need to fulfil orders. When that runs out, bin 2 has your back until new stock arrives to fill the first bin. That’s the two-bin system in a nutshell. It can be hairy when you get near the bottom of bin 2, but the two-bin system is a simple way to visualise inventory requirements.
Three-bin system
Take the two-bin system and add another bin at your supplier’s location. Bin 3 replaces bin 2 when empty, while the supplier produces material to refill bin 2. The three-bin method is based on Kanban methodology. While closely associated with JIT, three-bin stock control is surprisingly effective when you maintain good supplier relationships.
A final word on inventory control
Manufacturers who implement a stock control system effectively see benefits across the business. From increased storage space to less wasted material, lower material cost to bandwidth for innovation, stock control is a crucial piece of the manufacturing puzzle.
Find out how Jobman, an ERP system made for manufacturers, can take the stress out of stock management.
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