Inventory is a common feature of most manufacturing systems. Manufacturing processes require raw materials, components, work-in-process, and finished goods at various points throughout the manufacturing system.
Having lots of inventory doesn’t necessarily provide benefits. Production logistics seeks to manage inventory levels to optimize availability versus cost.
What is Production Inventory?
Production inventory is a term used to describe the inventory items within a manufacturing system.
There are typically four types of production inventory:
- Raw Material : Items procured to support production activities.
- Component : Parts and sub-assemblies used in the final product.
- Work-in-Process : Inventory items in production activities.
- Finished Goods : Completed items in inventory awaiting shipment or distribution.
Each of these types of production inventory plays a different role within the production environment.
Why is Inventory Needed?
Produced items aren’t typically manufactured using items as soon as they arrive in the plant.
Inventory acts as a cushion for unexpected changes in production requirements. For example, keeping an adequate level of critical parts can help avoid production delays if the vendor is late delivering the item.
The key is to know how much inventory to keep on hand.
Problems With Too Much Inventory
Excess inventory isn’t helpful for the production operation.
Having extra inventory takes up valuable space, ties up resources, and adds complexity. Some items may spoil, become obsolete, or lose value while sitting on the shelf.
Overstocking inventory items doesn’t necessarily benefit production operations.
Problems With Too Little Inventory
Too little inventory creates a risk for production.
A lack of a crucial item could result in missed shipments or increased operational costs. A single part being unavailable can halt a production process if there are no alternative parts available.
Therefore, inventory levels should be sufficient to avoid a stockout, but not excessive enough to incur additional costs.
Linking Inventory to Production Planning
Inventory should be aligned with production schedules.
If production rates fluctuate, then inventory levels should adjust accordingly. For example, if production is expected to rise, more parts will likely be required. If production is decreased, then the organization might be left with excess inventory.
Inventory data should be available for production planners to make informed decisions.
Why Inventory Accuracy Matters
Incorrect inventory data leads to serious issues. If a system indicates that something is available when in fact it’s already been consumed, then production planners might believe the item is available for use.
Likewise, if quantity information is wrong, then people might buy more than they need, or they might find that they’re short of stock when they need it. Therefore, accurate data and regular inventory control are essential.
Stock replenishment
Businesses will also want to have procedures for deciding how and when to replenish inventory. Replenishment decisions can be made based on a number of different things, including:
- How much you currently have in stock
- How much stock you’ll need in the future
- How quickly suppliers can deliver
- What your customer demand looks like
- Whether you maintain any safety stock
- Whether your suppliers are reliable
All of these should help you to plan your inventory replenishment activities based on real needs rather than guesswork.
Safety stock
Some businesses keep some extra inventory on hand for security, which is called safety stock. Safety stock can help businesses react to unexpected demand, supply disruptions, delays in delivery, or fluctuating rates of consumption. But safety stock shouldn’t just be kept in case it’s needed; businesses should think carefully about how much they need. Excess safety stock doesn’t bring any benefit, but it does cost money.
Digital systems
More businesses are now using digital systems to manage their inventory. Inventory software can monitor how much inventory you have, where it is, how it moves, and how much is consumed. If linked to a production planning or purchasing system, this software can provide more complete information about what inventory is actually available. Automated systems can also reduce manual data entry and help identify issues earlier.
Making improvements
One way to think about improving inventory management is to look at how materials move through your system. Some questions to consider are:
- Which materials are most likely to be consumed?
- Which materials cause the greatest risk of delay or disruption?
- How long does it take for your suppliers to deliver materials?
- Where is excess inventory building up?
- Which materials stay in storage without being used for long periods of time?
These and other questions can help businesses identify where there are opportunities for more effective planning and stock control.
Inventory as part of a bigger system
The inventory isn’t something that operates separately from production, purchasing, warehousing, and transportation. It’s all connected. So if, for instance, you have unreliable suppliers, you might need to hold more safety stock. But if you were able to improve supplier reliability, then you could probably reduce your safety stock. This is why inventory management is such an important element of the broader production logistics system.
Summary
Inventory management is about getting the balance right. Having too little inventory risks disrupting your production process, but having too much increases costs and reduces efficiency. So the amount of inventory you need will depend on the requirements of your production process, the reliability of your suppliers, demand, lead times, and the nature of the materials themselves.
The aim isn’t to have the largest inventory, it’s to have the right inventory at the right time.
LogisPeak helps learners understand how inventory decisions connect with production planning, material flows, warehousing, and overall manufacturing performance.