Avoiding Obsolete Inventory in Manufacturing - An ERP Solution
With all the hurdles placed before manufacturers today to compete in the global economy (governmental, competitive, environmental, etc.), the last thing a company needs is to do the sort of actions on its own that work against the operation.
Yet, this happens everyday when excess or obsolete inventory write-offs occur. These costly supply-chain problems result in the unnecessary fraying of bottom-line profits due to wasted materials, wasted time, and wasted opportunities to move parts/products out of the shop before they reach the end of their usefulness for a customer.
However, the cause for these manufacturing inefficiencies is quite common from shop to shop: Poor demand-management practices lead to poor inventory management. All too often, inventory managers lose track of those parts that are produced in excess and that remain in on-hand stock.
Typically, at the base of these inventory management problems is a general lack of knowledge or information of what and how much is in inventory at any given moment. In other words, there is not a complete system accuracy in inventory, and this inaccuracy, in turn, leads to mistakes on many levels—mistakes in purchasing, mistakes in production, mistakes in scheduling.
To consistently reduce wasteful inventory excess and obsolescence, there must be an inventory management regimen that instantly shows real-time relationships between inventory purchases and demand variations, inventory locations, and greater cycle counting accuracies capable of rapid turnaround. Today, the best way to fulfill all of these inventory management goals is through the use of a fully integrated enterprise resource planning software system (ERP).
As it informs the notion of efficient inventory management, ERP software systems improve calculations for how much scrap you are producing or reducing, In addition, ERP will keep an ongoing tally of the raw material and finished parts that are on the shelves.
For example, with a reoccurring job of 21 ordered parts, a manufacturer may produce an excess of 3 extra parts to allow for any scrap. If no pieces are scrapped and the 3 excess parts are placed in inventory after every job, then theoretically every seventh sales order from this customer would require no production at all—merely shipping all the accumulated excess parts that have been placed over time in inventory.
This assumes, of course, that the inventory manager is fully aware of the excess parts existing in inventory—an easier thing said than done for many manufacturers who may be making hundreds of different parts each day or week.
This is where a fully integrated ERP system can work to the advantage of the manufacturer. At the touch of a button on a graphical user interface, the inventory manager can see if and how many excess items exist before production begins.
In this way, excess inventory can be made available for order fulfillment and avoid languishing on shelves before they become obsolete through reasons such as engineering changes in the part. It is for this reason that ERP is a vital inventory management tool that contributes to not only more efficient operation of inventory departments, but also to the manufacturers bottom line.