Running Out of Inventory

Inventory issues can show it's ugly mug in a variety of ways. Maybe you've ran out of raw materials in the middle of a shift and now you're sending part of your labor force home or maybe you've ran out of your most popular finished product and can't make that big sale your sales force has been planning.

Whether it's traditional methods or just in time(JIT), Inventory is at the heart of many manufacturing companies. It's often one of their biggest assets and yet biggest risk. They must make the right product at the right time to fill the demand while keeping their costs down. Buy raw materials in enough quantity to get the price breaks they need and yet not too much it becomes obsolete or ties up too much cash.


See if any of these issues sound familiar.


Bill of materials (BOM) not entered properly or not up to date

You can correct this in a few ways. One look at your overhead, labor and material variances on your month's profit and loss. If those are drastically high or drastically negative you could then run the profit and loss by division or business line to identify exactly where the variances are. You can also multiply the quantity produced for the month times the build of materials and anywhere the inventory transactions vary from that number would be an area to examine for inaccuracies on your bill of material. Examining the balance sheet to see if there are errors needing corrected in either raw material, WIP, sub-components, or finished goods. If there is an issue with one of those accounts it may tell you where your issues are with the BOM also.



Poor sales projections

The more granular your analysis, the better you will be at projecting sales. For instance, if your sales forecast is created at the SKU level and you hold your sales team to specific sales goals by the SKU level you will have better luck getting numbers to plan your shop floor by well in advance of ever receiving the order. It's also helpful to study and know the natural business cycles within your product line. These are generally reports that can be created or ran from any ERP software such as Sage 50, Sage 100, Sage 500, or Sage X3.


Lead times for customers are too aggressive

Are you agreeing to lead times that push your equipment beyond the laws of physics? I'm not advocating to do something that causes a cash flow issue like mentioned in the last section, but there's a delicate balance between production rates, investment in equipment/infrastructure, inventory management and cash flows.


Poor production asset planning

Maybe it's just plain and simple, you need to add another line because three shifts on your current machines will not produce enough to supply the market demand. In most cases we've witnessed there's usually one bottleneck in a manufacturing process which can be alleviated through a small investment in one particular machine. How you know what machine that would be? Try running a report detailing the actual production for each machine. Find the machine in which the production rate starts the downward trend and each process thereafter follows. That's your bottleneck. Explore solutions there.

Shop floor planning needs improvement

Often shop floor planning needs improvement because good tools for planning are not available. Are you still trying to do it with pen and paper? Using spreadsheets? Maybe it’s time to consider something a bit more sophisticated or learn to use the sophisticated tool of which you’ve already invested quite a bit of money.

Whatever the reason for the improvement, you may be well to try running your daily or weekly production report along with tracking your machine idle time. Often you may find the reason materials are backing up behind a certain processes may have more to do with the planning the manufacturing than it does what plant assets are available. Also try visually mapping your material flow.  But whatever you do, make sure it is based on actual data from your ERP. 

Poor delivery terms with vendors

This one may seem simple, but many end up with poor delivery terms from their vendors because they get better pricing. However consider the balance of good purchase prices against the slow or idle manufacturing process. It may cost you more to have your equipment running idol or even the lack of saleable finished goods at a time the market is hot for those goods. Performing a cost benefit analysis may help understand the balance between vendor pricing and workflow interruptions.

Shipping containers.jpg

Inefficient subcontractors

I can’t express how important it is to keep active files on and to rate your subcontractors in a blog. Rate your subcontractors on things like on time delivery, price, and purchasing terms. Most ERP systems provide a way to maintain these ratings inside their vendor maintenance screen. 

Poor labor performance

The labor force and efficiency thereof tends to be the first place management looks when costs are out of line with industry standard or what the market will bear. Just remember, the more objective you are when you are assessing labor the more beneficial your conclusions will be to the business. One example would be running reports from your ERP system and bouncing them against a standards and goals which are typically set during the annual operations planning process instead of looking at production rates or run times as a flat number or shop floor reports with no context.