Inventory Management for Manufacturing: The Full Guide

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Modern manufacturers are always on the lookout for ways to optimize operations and scale their business. This is why inventory management is extremely important. Not only is it important that you learn how to use the ultimate inventory management software, but also that you master the fundamentals behind inventory management techniques.

All the businesses that deal with selling products need effective inventory management, to avoid the useless costs of over-stocking and the issues related to under-stocking (delays in the deliveries, customer complaints, ineffective service…). When you are a manufacturer, however, this is even more important.

Dealing with over or under-stocking when you can’t simply buy and sell products, it’s far more complicated. When you’re a manufacturer, the costs of over-stocking are higher – because you’ve bought raw material and spent time (or hired people) to assemble or craft the product and you’re not having a return, and the problems of under-stocking are more complicated.

You can’t simply order a product and ask your buyers to be patient while they wait for a couple of days; when you need to manufacture a product from scratch the delay is going to be much longer and your customers will get far angrier.

This is why inventory management for manufacturing is extremely important. Not only is it important that you learn how to use the ultimate inventory management software, but also that you master the fundamentals, the principles that should guide your inventory management to make sure you avoid the issues we’ve described above.

In this article, we’re going to provide you with a comprehensive guide on inventory management for manufacturing, starting with the basic principles and leading to describing the tools at your disposal.

What should inventory include?

Inventory management for manufacturing

The first thing we need to discuss when we speak about inventory management is… what do you need to manage? That is, what items should be included in your inventory?

Some include in their inventory anything relating to their business: from the items they sell to their office equipment. For more effective management, especially when you’re a manufacturer, however, we recommend including only the items that are related to the sale.

Therefore, your inventory should include, other than your items, everything related to their manufacturing: raw material, tools, and finished products.

Also, effective inventory management should include work-in-progress products: at any moment, you should be aware of how many items are in the process of becoming finished products, and at what stage of the process they are.

What are the benefits of effective management?

  • Efficiency: when you can manage your inventory properly, you can improve your business’ performance in terms of orders fulfillment
  • Optimizing resources: when your inventory is well organized, you can optimize your resources in terms of orders for the raw material, storing space, storing expenses, and more.
  • Avoid wastes: when your inventory is properly organized you avoid overstocking and waste of material, human resources, and more… When you know exactly what you have and what you need, your resources are always optimized
  • Save time and money: when your resources are optimized you can cut the expenses in terms of both money and time.

If what you’re getting from your current inventory management doesn’t match the above benefits, consider them as your goals for your inventory management development. Try to improve the way you manage your inventory until you hit these targets. How? Keep on reading.

Types of inventory management

Effective management

Now that we know what inventory management is and how it can benefit your business in many ways, let’s try to understand how to perform inventory management that suits the needs of your business.

In this regard, we’d like to provide you with three different inventory management strategies so that you can pick the one that is most suitable for you.

1. Just-in-time inventory

Just-in-time inventory is suitable for those manufacturing businesses that only make goods when the order comes in. In this strategy, you always have just a few goods or raw materials available in your stock and you’re ready to order more as soon as you need more.

In this strategy, costs and resources are cut down and optimized to create the highest-quality product. It also helps eliminate waste.

2. Perpetual inventory

Perpetual inventory is the strategy that is opposed to periodic inventory. Periodic inventory was popular some years ago among businesses, but it has revealed itself to be ineffective. It consisted in tracking inventory with periodic stock-takes, for example, every month, or even every year. Anything that happened in between the two stock-takes remained unknown and that’s why this didn’t turn out to be the ideal strategy.

Perpetual inventory, instead, consists in updating your inventory constantly, at any order placed, at any stock moved, at any new order for raw materials. This can be very time-consuming, but today technology can bring great help: inventory management software can automate a great part of the process: for example, when an order is made, the software can automatically deducts the inventory.

3. ABC inventory

This inventory management strategy is based on categorizing your products depending on what sells best and what doesn’t. So, you’re going to have a higher availability of goods that are your best-sellers, and a smaller number of goods that are more rarely sold.

When you already know that a certain product will “fly off the shelves”, the smartest strategy is to get prepared for it so that it never goes out of stock. In this case, ABC inventory is necessary: you need to sort of predict the trend in sales and get ready for it.

Inventory management: FAQs

  1. Is there any difference between inventory and stock? No, you can use both terms in the same way.
  2. Is there any difference between inventory management and inventory control? Yes, there is. Inventory control is only an aspect of inventory management: it deals with knowing where your inventory is at any moment so that you can make sure the finished goods are manufactured in time. As we’ve seen in the article above, inventory management deals with this and many other aspects.
  3. Is a safety stock good for my manufacturing business? Safety stock is when a business keeps a supply in their warehouses that is always ready for emergencies. As a manufacturer – since your production cycle is slower – you should consider having a safe stock of both finished goods and raw materials.


We hope that we’ve just helped you navigate the odds of inventory management. Now, you should be more aware of the benefits proper inventory management can bring for your manufacturing business and how you can implement the most effective one for your reality.

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