Long Business Systems, Inc. (LBSi) Explains How Better Inventory Planning Impacts Manufacturing
Improving the scheduling and prioritization of inventory can dramatically affect the manufacturing process as well as uncover efficiencies that need attention.
(PRUnderground) March 17th, 2017
This post examines the effects of better inventory scheduling/planning on the manufacturing process and product-specific profitability.
You Can Smooth Manufacturing Demand and Output
For companies producing multiple products, the manufacturing process involves many steps, including line prep, tooling, production, QA/QC, and more. If you reorder products too soon, it costs in extra effort, downtime, and opportunity cost. If you reorder too late, you incur costs associated with overly long production runs (e.g., raw material shortages, quality problems, backlogs of other products, etc.).
A modern ERP system enables you to predict demand based on the forecast calculations of individual products. In addition, the finance metrics that modern ERP tracks for each product allow your planners to prioritize the manufacture of certain products to meet minimum inventory levels. At the same time, you can establish maximum reorder quantities for any product so that enough product is available to meet customer demand without being overstocked. With proper planning, your company won’t chase demand because when you chase demand, you end up with large fluctuations in production rates that lead to higher costs for material inputs and rising product defects.
You Gain Holistic Cost Comparisons
Another way modern ERP improves manufacturing processes is by calculating costs based on the way you manufacture and package. Let’s consider a provider of pre-packaged, single-serve coffee pods for corporate office buildings. The manufacturing process could be set up so that the company makes the coffee container, grinds the beans, packages the ground coffee into the individual containers, performs QA checks on those processes, and then sends the individual pieces off to the packaging group. The packing group packages the product, puts it through another quality check, and then sends it to storage; from there, it’s not moved again until it’s packed onto trucks for delivery.
A modern ERP system can assign time and money costs to each step in the process, allowing the manufacturer to evaluate new options for the way they produce, package, and ship the coffee. Say, for example, that a third-party packaging company offers to take over the process after the beans are ground. This offers new options for the way the coffee company produces and packages what is now the final product (that is, the grounds).
Modern ERP provides comparative cost breakdowns for various outsourced options, including time and cost impacts on the manufacturing process and changes to the makeup and costs of incoming raw materials inventory. It also provides comparative cost breakdowns for finished goods inventory and carrying costs for the new type of finished goods to be sent to the packaging company. In the end, the coffee manufacturer will likely uncover both manufacturing/packaging process efficiencies as well as ways to reduce costs for raw materials.
To learn more about gaining manufacturing efficiencies and increasing per-product profitability, contact LBSI today.
About Long Business Systems, Inc.
You want a partner that will help you apply technology to solve the challenges that today’s fast-paced global marketplace has created. We understand and have personal experience with the diverse demands that manufacturers, distributors and service organizations face.
Our clients keep pace with large global companies by applying affordable technology to streamline operations, act on timely information, and accelerate profitable growth. Let us help you intelligently apply technology to your business challenges.
LBSi has been helping clients with technology and business process improvement since 1989.
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