Cottonbro Studio
The right inventory management strategy can streamline operations, reduce costs, lead to more timely project completion, reduce waste, and improve customer satisfaction.

Inventory Control for Machine Shops

July 1, 2024
Effective management for raw materials, MRO supplies, equipment, work-in-progress, and finished goods is critical to shop performance and productivity.

In machine shops, the “parts” — i.e., the raw materials, MRO supplies and equipment, works-in-progress, and the finished goods — are vital role in the success of the business. Without effective management of these parts, shops will face inefficiencies, lost sales and cash flow issues, and over- or underproduction.

The right inventory management strategy, on the other hand, can streamline operations, reduce costs, lead to more timely project completion, reduce waste, and improve customer satisfaction. However, not all stock management strategies are equally effective.

Why is inventory management important?

Without proper management, inventory distortions cost companies an average of $1.1 trillion annually — and yet 43% of American small businesses don’t track inventory.

That detail alone should be enough to convince machine shops to adopt better inventory management practices. However, as further proof and encouragement, here are some of the more positive benefits of integrating an effective stock management strategy.

  Improved accuracy: Businesses that integrate inventory management systems into their operations tend to have greater accuracy with product orders and delivery tracking.

  Reduced costs: Without proper tracking of inventory, shops can end up over-ordering and carrying surpluses, which is unnecessary spending. Or, a lack of proper tracking may result in not having enough stock, which can lead to lost sales. Effective inventory management means you have exactly what you need at all times to operate efficiently and meet demands.

  Better organization: Inventory management strategies are not meant only to determine much stock you should have, but also to ensure that stock is organized and easy to find. When workers can find and access what they need easily, things continue to run smoothly without delay.

  Reduced dead stock: Another issue with over-ordering is ending up with stock that has gone bad, is out of style or season, or can no longer be used for various other reasons — and this can be avoided with a quality inventory management system.

  Improved customer satisfaction: Of course, when everything is running smoothly and you never run out of what you need to meet orders, customers will be more consistently satisfied. This means more loyal customers and also higher revenues from more sales.

It’s also worth noting that a good inventory management strategy includes demand forecasting, which can help shops stay prepared for the unexpected. Advanced inventory tracking tools use past trends and patterns to alert staff when things need to be ordered, for example, to prevent running out of stock unexpectedly.

5 Effective machine shop inventory strategies

There are numerous stock management strategies, but these are some of the most effective for manufacturers and machine shops.

1. Accounting and inventory management. First, it’s helpful to align accounting systems with inventory management systems. Inventory systems track where and how much stock you have, and accounting systems report whether you have enough money to afford the things you need to buy. So it makes sense to align these two systems to ensure product availability meets financial goals.

2. Inventory audits. The Q (quantity) factor in inventory counting is necessary to carry out any machine shop program. In other words, when tracking inventory, the quantity of an item is more important than the price. This strategy for ensuring you have the right quantity of an item is often referred to as perpetual inventorying or cycle counting. The objective is to ensure you always have enough stock on hand to meet product orders by ensuring the amount of physical inventory matches inventory records. The method involves counting select batches of inventory regularly to avoid discrepancies.

While manual inventory auditing can be tedious, it is a crucial part of any inventory management strategy. To make it easier, create internal auditing checklists to help you stay on track. The checklist should include:

  • Reasoning for the audit, which in this case, is to check the accuracy of inventory.
  • Establishing a goal for the audit, such as cutting spending on overordering. 
  • Using the necessary documents to record or report the audit.
  • Identifying performance indicators to help you identify how well the audit is achieving your desired objective, such as reduced costs, improved profitability, or even customer satisfaction scores.
  • A thorough review of the audit documents after the audit to help highlight irregularities or discrepancies.

Once all of this is completed, the final step in any inventory audit should be creating an action plan to address issues and areas that need improvement.

3. Just-in-Time inventory. JIT is a lean manufacturing inventory management strategy. The point of this strategy is to ensure there is exactly enough stock in place to meet order demands. This helps reduce costs by setting up material deliveries so they are received only as needed. The key to making this strategy work is partnering with reliable suppliers to ensure a consistent flow of materials when they are needed.

4. Demand forecasting. Demand forecasting is an essential part of effective inventory management. This requires adopting smart inventory management tools that use data analysis to identify past patterns and trends. By doing so, the system can then provide insights into when demand will be higher or lower, so you can adjust inventory accordingly.

5. Smart labeling. Another important factor for streamlined operations is ensuring proper labeling for products and materials. Traditional barcode labeling methods are outdated because they are not entirely efficient. Barcode scanners often don’t work if they don’t have a clear line of sight and barcodes also contain a limited amount of data. They can also result in security issues as barcodes can easily be duplicated.

Smart labeling solutions, however, such as RFID tags, NFC tags, and data-matrix codes are more efficient. RFID tags can include greater amounts of data and transmit data directly to a receiver. That data can then be sent directly to a computer or digital device for operational managers to easily access for tracking inventory, equipment, and orders. Similarly, NFC tags can transmit data to mobile devices for easy access control and asset tracking.

Data matrix codes are 2D barcodes with grid patterns made up of dots and shapes. These kinds of barcodes are harder to duplicate and can easily be read by scanners even if the label is damaged.

Wrapping up

The most important component for inventory management is a software program or system that automates as many inventory processes as possible. Automation tools help streamline processes by keeping things running faster and eliminating human error. These systems can take care of smaller repetitive tasks too, so workers and operations managers can focus on tasks and projects that require their direct attention.

For example, inventory automation can provide real-time alerts and tracking, streamline the auditing process, automate recording, and run reports to assist with inventory forecasting. However, inventory management software systems vary widely in their functions, so it’s important to shop around for one that meets the specific needs of your company and integrates with your existing systems. 

Ainsley Lawrence is a freelance writer and editor. Her most recent contribution is Exploring Sustainable Practices in Machining.