4 major causes of inventory waste in the manufacturing industry

Success in the manufacturing industry relies heavily on a careful balance of supply and demand. Knowing exactly what to build and what to buy can be difficult to manage without accurate understanding or planning. Many manufacturers without these insights often hold far more materials and inventory than is required to produce goods in time for customers. These inefficiencies and inaccuracies with inventory can be a risk and can cause major problems and costs.

By optimizing inventory control and removing inventory waste, you can improve your bottom line, making your manufacturing processes and whole business more efficient. In this blog we have identified four major causes of inventory waste in the manufacturing industry and suggest how sophisticated manufacturing software can help your company reduce inventory waste in the future.

1. Overproduction

Overproduction waste can happen when parts, assemblies or products are produced which are not needed, but also when items are produced before they are needed. Overproducing causes you to tie up capital in stock, raw materials, work in progress (WIP) and finished goods. All of this also increased the costs associated with storage, people, equipment and more.

Manufacturing Enterprise Resource Planning (ERP) software has various sophisticated features which enable businesses to accurately oversee their entire manufacturing operations. Such software provides simpler and more accurate Materials Requirements Planning (MRP) and forecasting capabilities to optimize production planning.

2. Delays

The ‘waste of waiting’ tends to occur through processing bottlenecks for delayed delivery of raw materials and supplies. It can quickly increase production costs, as employees and equipment can be under-utilised while they wait for materials to arrive.

Making sure you have everything you need on hand – whether it’s raw materials, production capacity or sufficient labour is key to running an efficient, balanced and flexible manufacturing business. Manufacturing ERP software provides sophisticated production planning and scheduling capabilities. MRP features can also play a vital role in ensuring you have the right quantity of materials on hand and are able to meet production needs without delays.

3. Defective inventory

There are many factors that can contribute to inventory defects – many of which are completely avoidable. Defects can come from equipment faults, supplier issues, lack of operator training and more. The costs associated with inventory defects can be high, especially when you consider the costs of rework, rescheduling, extended lead time and unsatisfied customers.

The most effective way to deal with unexpected defective inventory is preventative maintenance by ensuring your equipment and operations are always running at its optimum level. Manufacturing ERP software streamlines your manufacturing operations ensuring your business is running efficiently also reducing defective inventory disruptions.

4. Overstocking

Some may see having a large amount of inventory on hand saves you from running out. But these savings can be quickly offset by the major problems of overstocking.

Surplus inventory, whether raw materials, work in progress or finished products, takes up valuable warehouse space resulting in higher risks, maintenance and handling costs. Depending on the goods, you may be left with stock that deteriorates, suffers wear and tear, or perishes after a period of time. Of course, you can speed up production to use up the stock before it deteriorates, but you may then be left with finished products you cannot sell.

Manufacturing ERP software has powerful planning tools that enables manufacturers to satisfy demand while maintaining optimal inventory levels.

Inventory waste quite often brings substantial costs, risks and inefficiencies to a business. The solutions lies not only in managing inventory but effectively predicting demand, analysing material and resource requirements. Manufacturing ERP software like the MYOB Advanced Manufacturing Edition provides real-time data and visibility to reduce your inventory waste and operate more effectively.

With real-time stock levels, prices and orders, along with automated planning and forecasting capabilities, Manufacturing ERP Software brings accuracy, real-time immediacy and integration to the production process.