Manufacturing inventory management involves separating materials by product, establishing internal controls, selecting a cost accounting method, implementing a perpetual inventory system, and creating an inventory reconciliation process to control physical inventory and accounting processes. Companies use a variety of materials, and internal controls prevent misuse. Cost accounting methods depend on how a business produces products. A perpetual inventory system updates books, and inventory reconciliations ensure accurate numbers.
Manufacturing inventory management is often a detailed process for manufacturing companies. These organizations may have numerous parts and pieces that make up the products they produce and sell to consumers and other businesses. The best tips for manufacturing inventory management are separating materials by product, establishing internal controls for handling physical items, selecting a cost accounting method, implementing an inventory method perpetual and creating an inventory reconciliation process. These activities will help control both the company’s physical inventory and accounting processes.
Most manufacturing companies use a large variety of materials to produce goods. These can range from large objects such as sheets of steel or fiberglass to small, indirect objects such as screws, glue or sealant. Companies will need to separate these items by product to ensure that each production line has adequate levels of materials to produce goods. This also prevents other divisions from using incorrect materials when producing goods.
Internal controls are an essential element of manufacturing inventory management. These controls prevent the misuse or misuse of inventory by employees and other people working in the company. For example, basic internal controls will limit the number of people who can order inventory, where the business stores inventory (blocked or unblocked facilities), how often the business counts inventory, and other controls for the entire inventory process. Most internal controls are company specific and depend on the type or number of inventory items.
Cost accounting methods will depend on how a business produces products. Manufacturing inventory management requires this set of processes so that managers understand how to report inventory used in the manufacturing process. Labor costing tracks inventory materials for each item produced. Works well with custom objects such as buildings, movies, or other objects built to specific specifications. Process costing tracks inventory based on the production steps required to produce goods. Food items, computer chips, and sodas are some common examples of this costing method.
In manufacturing inventory management, companies should attempt to implement a perpetual inventory system that includes a reconciliation process. A perpetual inventory system updates the company’s books every time someone orders materials, assigns inventory to the manufacturing process, or sells finished goods. While more timely to set up and monitor, perpetual inventory allows for more detailed information. Inventory reconciliations – counting all physical inventory assets and matching them to the ledgers – are necessary to ensure that accurate numbers are always available. Inventory counts can be performed quarterly or annually to limit operational downtime for this administrative process.
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