Manufacturing inventory management requires separating materials by product, implementing internal controls, selecting cost accounting methods, using perpetual inventory, and creating an inventory reconciliation process to control physical inventory and accounting processes.
Manufacturing inventory management is often a detailed process for manufacturing companies. These organizations may have various parts and pieces that make up the products they produce and sell to consumers and other businesses. The best tips for managing manufacturing inventory are to separate materials by product, institute internal controls to manage physical items, select a cost accounting method, implement a perpetual inventory method, and create an inventory reconciliation process. These tasks will help control the company’s physical inventory and accounting processes.
Most production companies use a wide variety of materials to produce goods. This can range from large items such as sheet steel or fiberglass to small, indirect items such as screws, glue or sealant. Companies will need to separate these items by product to ensure each production line has adequate levels of materials to produce goods. This also prevents other divisions from using the wrong materials when producing goods.
Internal controls are an essential part of manufacturing inventory management. These controls prevent abuse or misuse of inventory by employees and others who work for the company. For example, basic internal controls will limit the number of people who can order inventory, where the company stores inventory (locked or unlocked facilities), how often the company counts inventory, and other controls for the entire inventory process. Most internal controls are specific to companies and depend on the types or number of inventory items.
Cost accounting methods will depend on how the company produces products. Manufacturing inventory management needs this set of processes for managers to understand how to report inventory used in the production process. Labor cost controls the stock materials of each item produced. This works well for custom items like buildings, movies, or other items created to specific specifications. Process costing tracks inventory through the production steps required to produce goods. Food products, computer chips, and carbonated beverages are some common examples of this costing method.
In manufacturing inventory management, companies should try 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, allocates inventory for the production process, or sells finished goods. While more timely to set up and track, perpetual inventory allows for more detailed information. Inventory reconciliations – counting all goods in physical inventory and matching them to the ledgers – are necessary to ensure that accurate figures are always available. Inventory counts can be done quarterly or annually to limit operational downtime for this administrative process.
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