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What are the Best Tips for Manufacturing Inventory Management?

By Osmand Vitez
Updated May 16, 2024
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Manufacturing inventory management is often a detailed process for production companies. These organizations can have numerous parts and pieces that make up the products they produce and sell to consumers and other businesses. The best tips for manufacturing inventory management are to separate materials by product, institute internal controls for managing the physical items, select a cost accounting method, implement a perpetual inventory method, and create an inventory reconciliation process. These tasks will help control both the physical inventory in the firm and the accounting processes.

Most production firms use a large variety of materials to produce goods. These can range from large items like steel or fiberglass sheets to small, indirect items like screws, glue or sealant. Companies will need to separate these items by product to ensure that each production line has adequate levels of materials to produce goods. This also prevents other divisions from using incorrect materials when producing goods.

Internal controls are an essential piece of manufacturing inventory management. These controls prevent the abuse or misuse of inventory by employees and other individuals working in the company. For example, basic internal controls will limit the number of individuals who can order inventory, where the company stores inventory (locked or unlocked facilities), how often the company counts inventory and other controls for the entire inventory process. Most internal controls are specific to companies and depend on the types or number of inventory items.

Cost accounting methods will depend on how a company produces products. Manufacturing inventory management needs this process set so managers will understand how to report inventory used in the production process. Job costing tracks inventory materials for each item produced. This works well for custom items like buildings, movies or other items built to specific specifications. Process costing tracks inventory by the production steps needed to produce goods. Food products, computer chips and carbonated beverages are a few common examples of this costing method.

In manufacturing inventory management, companies should attempt to implement a perpetual inventory system that includes a reconciliation process. A perpetual inventory system updates the company’s accounting books every time someone order materials, allocates inventory to production process or sells finished goods. Though more timely to set up and control, perpetual inventory allows for more detailed information. Inventory reconciliations — counting all physical inventory goods and matching them to the accounting books — are necessary to ensure accurate numbers are always available. Inventory counts can be done quarterly or annually to limit the operational downtime for this administrative process.

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