Homaira Daum

Supply chain management (SCM) encompasses everything from negotiating vendor contracts for raw materials to handling product returns. While it is central for any company producing or selling physical goods or services, this post focuses on the importance and best practices of SCM from the perspective of small and medium manufacturers.

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Table of Contents

1. What is Manufacturing Supply Chain Management?
2. The 5 Main Components of Manufacturing Supply Chain Management
3. Are Supply Chain Disruptions the New Normal?
4. The Importance of SCM for Manufacturers
5. Manufacturing Supply Chain Management Best Practices for SMEs
6. Enhancing Business Operations with Brytebuild
7. Key Takeaways
8. FAQs

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What is Manufacturing Supply Chain Management?

Supply chain management (SCM) is a central concept in commerce that refers to the management of everything related to the flow of goods of a company. It encompasses every process that plays a part in raw materials being transformed into finished products and also involves aspects of after-sale activities like handling warranty claims and returns.

Manufacturing supply chain management includes all aspects of business that deal with physical goods and their logistics: inventory optimisation, vendor management, logistical processes like shipping, distribution, and delivery, as well as manufacturing processes such as WIP (work in process) inventory management, production scheduling, capacity planning, and demand forecasting.

The role of SCM is to ensure that the supply of goods is as streamlined as possible – that raw materials make it to the warehouse or production facility at just the right time and in the right quantity; that production capacities match demand as closely as possible; and that lead times and product costs stay minimal. As such, SCM can be seen as part of the larger inventory management process.

What are Supply Chains?

A supply chain is the entire journey a product takes from the beginning of its manufacturing effort to finished sales. Far more than just logistics management, it comprises the sum of processes, people, businesses, activities, information, and resources needed to get a product or service from scratch to consumers.

Therefore, a supply chain includes not just raw materials but also the procurement management of the materials. On the other end of the pipeline, it includes not just finished goods, but also their distribution network, logistics partners, and returns.

All the organisations that constitute a supply chain are joined together through physical and information flows. Physical flows are the transformation, movement, and storage of goods and materials. Information flows, on the other hand, allow the various players in a respective supply chain to coordinate plans and control the day-to-day flow of goods throughout the supply chain.

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The 5 Main Components of Manufacturing Supply Chain Management

There is no single correct way to manage a supply chain because there are countless different ways of doing business. Still, supply chain management systems usually consist of five essential phases: strategy, sourcing, manufacturing, delivery, and returns. Let’s go over these in a bit more detail.

Planning and Strategy

Every organisation must plan and manage all the resources needed to meet customer demand for their product or service. The supply plan should factor in everything from material availability and production capacity to labour and equipment requirements, logistical constraints, and budgets. The more supply-related aspects of production are considered in the supply plan, the fewer surprises one can expect down the line.

A strategic approach to planning considers both short-term and long-term goals, aligning supply chain activities with the company’s overall objectives. According to the Chartered Institute of Procurement & Supply (CIPS), effective planning can reduce costs by up to 30%.

Sourcing

Ensuring high-quality raw materials from reputable vendors is an essential aspect of any production effort. The process does not end once the suppliers are under contract. Instead, the supply chain manager is tasked with continuous vendor management. Sourcing also involves continuous procurement planning and purchase order management (ordering, delivery, authorising payments, etc.) throughout the manufacturing process.

Building strong relationships with suppliers and having alternative sources can mitigate risks. A report by the UK government suggests that having a diversified supplier base can reduce the impact of supply chain disruptions by 50%.

Manufacturing

This central phase in supply chain management details all processes related to in-house production, i.e., the transformation of raw materials (and services) into finished goods. Things to take into account in the SCM system include production efficiency, planning and scheduling, inventory optimisation, quality assurance, and packaging.

Efficient manufacturing processes are crucial for maintaining product quality and meeting delivery deadlines. The Manufacturing Institute reports that improving manufacturing efficiency can lead to a 20% increase in production output.

Delivery and Logistics

This phase entails the logistics of the whole production operation. Coordinating customer orders, scheduling deliveries, dispatching loads, creating and sending invoices, receiving payments, etc., all fall into the delivery phase. Resilience is crucial here; having an extra distribution partner or delivery method can be invaluable during disruptions.

Implementing technology like GPS tracking and route optimisation can enhance delivery efficiency. According to Transport for London, optimising delivery routes can reduce transport costs by up to 15%.

Returns and After-Sales

For most commercial products, an SCM effort needs to have policies for customer returns and warranty care. Developing a functional and cost-effective system for after-sales equals more customer satisfaction in the long run.

Managing returns efficiently can improve customer loyalty. A study by the University of Warwick found that a well-managed returns process can increase repeat business by 25%.

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Are Supply Chain Disruptions the New Normal?

In recent years, an increasingly globalised marketplace and near-constant supply chain disruptions have become the new normal across the entire manufacturing industry. According to a 2022 study by Deloitte, the era of simple supply chains is essentially gone for good.

Shipping delays, raw material shortages, rising shipping prices, and the resulting production planning and inventory management issues have become mainstays in manufacturing. Increasing control over one’s supply chain by implementing effective SCM practices is therefore increasingly important for companies of any size. This is especially crucial for smaller players that need to juggle tight profit margins and have fewer resources for backups.

A report by the UK Department for Business, Energy & Industrial Strategy highlights that 73% of SMEs faced significant supply chain disruptions in the past year. This underscores the need for robust SCM practices.

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The Importance of SCM for Manufacturers

Supply chain management is a natural part of any company purveying physical goods, be it distributors, retailers, or manufacturers. Still, SCM includes some distinct considerations for the latter.

Manufacturing has Innate Complexities

Manufacturing supply chains are generally more complicated than distribution. Materials and components need to converge with labour and processing in a timely, planned-out manner, often in many consecutive steps. This implies precise forecasting and capacity planning to adequately schedule production.

According to the UK Manufacturing Review, effective SCM can reduce production downtime by up to 40%, highlighting the importance of well-coordinated supply chain activities.

Outsourcing Affects Global Supply Chains

In the modern manufacturing landscape, one brand often has several companies contributing to its products. Many manufacturers, especially in the SME space, rely on partial or total sub-assembly production for their revenue. Conversely, others depend on sub-contractors to produce some or all of their components, assembling the final products in-house.

The Institute of Supply Chain Management (IoSCM) indicates that outsourcing parts of the supply chain can lead to cost savings of up to 25%, but it also requires meticulous management to avoid delays and quality issues.

Manufacturing is Experiencing a Digital Transformation

With the onset of Industry 4.0, modern manufacturing is becoming increasingly reliant on digital technologies and solutions. Manufacturers are adopting Internet of Things (IoT) devices, implementing robotics, and utilising machine learning. This ushers in more control over processes through real-time analytics and data-based decision-making.

A survey by PwC found that 72% of manufacturers plan to increase their digital investment over the next five years, aiming to enhance supply chain visibility and efficiency.

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Manufacturing Supply Chain Management Best Practices for SMEs

To end this article, here are five manufacturing supply chain management best practices that any small or medium manufacturer should focus on.

Facilitate Collaboration with Key Nodes in the Supply Chain

More collaboration with key supply chain partners means faster response times in case of sudden disturbances. Implement supplier relationship management practices to strengthen partnerships. Consider vendors as partners rather than service providers, simplify and facilitate back-and-forth information sharing, and check in with them frequently.

Keep Up to Date with Shifts in Regional Supply

Today’s logistics networks are dynamic and fast-changing. While it certainly makes sense to strengthen existing relationships, it’s also a good idea to keep a close eye on any news and events that can introduce opportunities or alternative sources. A continuous effort to improve the efficiency of the supply chain is among the basic tenets of effective supply chain management.

The Confederation of British Industry (CBI) suggests that staying informed about regional supply trends can reduce lead times by up to 20%.

Measure Supply Chain Performance Regularly

The only reliable way to ensure an efficient supply chain is by measuring its efficiency. This is where supply chain-centric key performance indicators (KPIs) come into play. Examples of useful metrics include On-Time and In-Full Delivery, Customer Order Cycle Time, Fill Rate, and Inventory Days of Supply.

A study by the Chartered Institute of Logistics and Transport (CILT) shows that businesses that regularly measure supply chain performance can improve their operational efficiency by 30%.

Increase Supply Chain Resilience

Utilising production strategies like Just-in-Time (JIT) or adopting pull-type workflows is perhaps the best way to minimise waste and increase manufacturing efficiency. However, these types of optimisations are also more susceptible to disruptions. With global supply chains in turmoil, many manufacturing sectors are seeing a resurgence of Just-in-Case (JIC) manufacturing practices. Always keep a few extra vendors on the quick dial.

Implement Manufacturing Software

Lastly, implementing manufacturing software can make a decisive difference in your SCM efforts. Good MRP systems and manufacturing ERPs include built-in procurement tools as well as vendor and order management modules, integrated with the whole manufacturing operation. This provides you with real-time info on all inventory movements and introduces added visibility and traceability over the whole supply chain. The best providers also include Quality Assurance (QA), Customer Relationship Management (CRM), and Return Merchandise Authorisation (RMA) modules.

A report by Deloitte indicates that businesses using integrated manufacturing software can reduce their inventory carrying costs by up to 25%.

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Enhancing Business Operations with Brytebuild

Brytebuild offers a comprehensive suite of supply chain management tools designed to help businesses of all sizes optimise their operations. Here’s how Brytebuild can support your SCM efforts:

• Real-Time Inventory Tracking: Brytebuild provides real-time updates on inventory levels, movements, and costs, ensuring that you always have an accurate view of your stock.
• Procurement and Vendor Management: Streamline procurement processes and manage vendor relationships effectively.
• Detailed Reporting and Analytics: Access detailed reports and analytics to identify trends, track supply chain performance, and uncover potential issues before they escalate.
• Integrated Supply Chain Modules: Brytebuild offers integrated tools for quality assurance, customer relationship management, and return merchandise authorisation.
• User Training and Support: Comprehensive training and support to ensure your team can effectively use the system and maintain supply chain efficiency.

Try Brytebuild Today

Experience the benefits of Brytebuild’s advanced supply chain management features. Contact us for a demo or sign up for a free trial to see how we can help you optimise your supply chain processes.

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Key Takeaways

• Supply Chain Management: Central concept in commerce that refers to the management of everything related to the flow of goods of a company.
• Components: Includes aspects of inventory optimisation, vendor management, logistical processes like shipping, distribution, and delivery, as well as manufacturing aspects like production scheduling, and capacity planning, as well as customer returns and RMAs.
• Five Phases: Planning and strategy, procurement and sourcing, manufacturing, distribution, and returns or after-sale support.
• Complexities for Manufacturers: Manufacturing supply chains are more complex than distribution due to the need for precise forecasting, capacity planning, and the convergence of materials and labour.
• Best Practices: Facilitate collaboration with key suppliers, measure supply chain performance regularly, increase supply chain resilience, and implement manufacturing software for added visibility and control.

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FAQs

What is manufacturing supply chain management?
Manufacturing supply chain management is the systematic process of managing all aspects of a manufacturing company’s product in its journey from raw materials to finished goods. It comprises the sum of processes, people, businesses, activities, information, and resources needed to fabricate a product and get it to consumers.

Is manufacturing part of supply chain management?
Manufacturing is necessarily a part of supply chain management because SCM includes all phases and processes in a product’s lifecycle from raw material to after-sale care.

Is manufacturing the same as supply chain management?
Not all supply chains include a manufacturing phase because some supply chains comprise goods or services that lack value-added production steps. However, all manufacturing processes are a part of their respective supply chains because any manufacturing is a step in the product’s overall journey from raw materials to finished goods.

What are the five basic components of supply chain management?
The five basic components of supply chain management include the planning or strategy phase, the sourcing or procurement phase, the manufacturing phase, the delivery or logistics phase, and the returns phase.

Inventory shrinkage is a common issue in businesses dealing with physical inventory. The consequences include financial losses, operational disruptions, and loss of competitiveness. But how does it happen, and how can it be prevented?

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Table of Contents

1. What is Inventory Shrinkage?
2. How to Calculate Inventory Shrinkage?
3. How to Calculate the Inventory Shrinkage Rate?
4. Causes of Inventory Shrinkage
5. Consequences of Inventory Shrinkage
6. Tips for Minimising Inventory Shrinkage
7. How to Report Inventory Shrinkage in Financial Statements?
8. Enhancing Inventory Management with Brytebuild
9. Key Takeaways
10. FAQs

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What is Inventory Shrinkage?

Inventory shrinkage occurs when the actual quantities in your inventory are smaller than what is recorded in your books or inventory management system. This discrepancy can arise from several factors, including administrative errors, damage, spoilage, theft, and supplier fraud.

According to a report by the British Retail Consortium (BRC), the average shrinkage rate in the UK retail sector was approximately 1.3% in 2022. No business that deals with physical inventory is immune to shrinkage.

Conducting stocktakes and comparing the results to your inventory records is the most reliable method of discovering inventory loss, as this provides concrete evidence of discrepancies.

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How to Calculate Inventory Shrinkage?

To calculate the inventory shrinkage value, you can use the following formula:

Shrinkage Value = Inventory Value Record – Physical Inventory Value

For example, if £60,000 is marked as the company’s inventory value in their accounting records, and after an inventory count, the real physical inventory value is calculated to be £58,000, the shrinkage value is:

£60,000 – £58,000 = £2,000

Therefore, the company lost £2,000 worth of inventory during the period.

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How to Calculate the Inventory Shrinkage Rate?

As inventory value can fluctuate, shrinkage value is not the most trustworthy metric for tracking shrinkage over time. To continuously measure shrinkage and use it as a KPI of your inventory management performance, start calculating the inventory shrinkage rate.

Inventory Shrinkage Rate = (Shrinkage Value / Inventory Value Record) x 100

Using the previous example, where the recorded inventory value was £60,000 and shrinkage was £2,000, the shrinkage rate would be:

£2,000 / £60,000 x 100 = 3.33%

This means that 3.33% of the inventory value was lost through shrinkage.

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Causes of Inventory Shrinkage

Inventory shrinkage can be caused by many factors that usually work in combination. Here are some of the most common causes of shrinkage:

Damage

Damage to inventory items can occur during various stages of the supply chain, from handling in the warehouse to transportation. Physical damage often results in a reduction in actual inventory levels compared to what is recorded in the accounting books.

Spoilage

Perishable goods or products with expiration dates can suffer from spoilage. When these items go bad before being sold, it leads to a loss of inventory. This is particularly common in the food and pharmaceutical industries.

Production Errors

Mistakes in the production process may cause scrapped materials or defective products that need to be written off. This is often seen in manufacturing environments where quality control is crucial.

Employee Theft

Internal theft by employees is a significant contributor to inventory loss. According to the Centre for Retail Research, employee theft accounted for 33.7% of all retail shrinkage in the UK in 2023.

Shoplifting

Shoplifting by external parties is an extremely common cause of shrinkage in retail environments. It occurs when customers steal products from the store. According to the British Retail Consortium, shoplifting cost UK retailers over £700 million in 2022.

Vendor Fraud

Vendor fraud occurs when suppliers manipulate orders or invoices, providing fewer items than what was agreed upon or charging higher prices. This leads to a discrepancy between the actual inventory and the recorded amount.

Inventory Miscounting

Errors in counting inventory during physical inventory counts or cycle counting can lead to inaccuracies in recorded inventory levels. These human errors can result from miscounts, omissions, or double-counting of items.

Administrative Errors

Administrative errors in inventory accounting, such as data entry mistakes, can create discrepancies between actual inventory and recorded amounts. These are often unintentional human errors but can have serious consequences.

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Consequences of Inventory Shrinkage

Inventory shrinkage can lead to several serious consequences:

Financial Loss

One of the most immediate and direct consequences of shrinkage is financial loss. It reduces the value of a company’s assets and directly impacts your bottom line because the cost of the lost inventory is subtracted from revenue without any corresponding benefit from sales.

Stockouts

Shrinkage can lead to unexpected stockouts, where you run out of products to sell or materials to use in manufacturing. This can delay production schedules and disappoint customers, leading to lost sales.

Overstocking

To compensate for shrinkage, some businesses may overstock inventory as a buffer, tying up capital that could be used elsewhere. This also increases holding costs and the risk of inventory becoming obsolete.

Operational Disruptions

Frequent stockouts and overstock situations disrupt normal operations, leading to inefficiencies and increased costs in supply chain management, production stoppages due to material shortages, and the inability to fulfill orders on time.

Damage to Reputation

Constant late or incomplete deliveries can lead to customer dissatisfaction and loss of business. In today’s competitive market, maintaining a good reputation is crucial for customer retention.

Increased Costs

Maintaining excess inventory as a safeguard against shrinkage-related stockouts increases holding costs. Additionally, dealing with and analyzing inventory loss often requires additional labour hours.

Loss of Competitiveness

A company that consistently struggles with shrinkage may lose its competitive edge in pricing, availability, and customer service compared to more efficient competitors. Efficient inventory management is crucial for maintaining competitiveness in the market.

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Tips for Minimising Inventory Shrinkage

Conduct Regular Inventory Audits

Regular inventory audits involve physically counting and verifying the actual amount of inventory on hand against what is recorded in your records. These audits help identify discrepancies and shrinkage issues promptly, enabling you to take corrective actions. Implementing a schedule for these audits, such as monthly or quarterly, ensures that you stay on top of inventory accuracy.

Using cycle counting methods, where you continuously count a portion of your inventory over time, can provide a more real-time view of inventory levels and reduce the need for massive annual audits. By regularly auditing your inventory, you can uncover issues early, address root causes, and prevent shrinkage from escalating.

Train Employees

Training should cover various aspects, including proper inventory handling to prevent damage, understanding production processes to avoid overproduction or errors, accurate data entry to maintain inventory records, and adherence to First Expired, First Out (FEFO) principles for perishable goods. Well-trained staff can drastically reduce human errors that contribute to inventory shrinkage.

Training programmes should be ongoing, with regular refreshers, and should also include security awareness to prevent internal theft. Engaging employees in the importance of inventory accuracy and making them aware of how their actions impact the bottom line can be motivating factors in minimising shrinkage.

Implement Security Measures

Implementing security measures is vital to prevent both internal and external theft. Internal theft, such as employee theft, can be deterred with security systems like surveillance cameras and access control measures. These not only act as deterrents but also provide evidence in case of suspicious activities.

For e-commerce and point of sale (POS) settings, secure payment processing and order verification processes also contribute to preventing inventory loss.

External theft, such as shoplifting, can be reduced with vigilant staff, proper store layout, and security personnel. It’s essential to regularly review and update security systems to stay ahead of potential threats and maintain a safe environment for your inventory.

Conduct Vendor Audits

Regular vendor audits are crucial to combat vendor fraud. These audits involve verifying that the products received match the purchase order, both in terms of quantity and quality. They also ensure that the agreed-upon pricing and terms are adhered to. Maintaining strong supplier relationships and transparent communication can help reduce the risk of fraud.

Implementing vendor scorecards and KPIs can help you evaluate supplier performance regularly. If a supplier consistently fails to meet expectations, it may be time to reassess the relationship and explore alternative sources to protect your inventory from vendor-related shrinkage.

Use Proper Stocktaking Procedures

Stocktaking procedures should include guidelines for conducting physical counts, reconciliation processes to address any discrepancies discovered during the count, and steps to handle damaged or spoiled inventory items. Double-checking counts and using barcode scanning systems can further improve accuracy and reduce human errors.

Establishing clear protocols for reporting and addressing discrepancies between physical counts and recorded inventory levels ensures that issues are promptly investigated and resolved. Developing standard operating procedures also plays a crucial role in training new employees and maintaining a consistent approach to inventory management throughout your organisation.

Implement Inventory Management Software

Inventory management software offers real-time tracking of inventory levels, automates inventory control tasks, and provides insights into inventory turnover. It streamlines the entire inventory management process, from creating purchase orders and receiving goods to tracking inventory movements and sales.

Barcode scanning capabilities make data entry more efficient and accurate, reducing the risk of errors that contribute to shrinkage. Inventory management software also offers detailed reporting and analytics, helping you identify trends and anomalies that may indicate potential shrinkage issues, allowing for proactive measures to be taken.

Overall, implementing such software increases efficiency, accuracy, and visibility in managing inventory, contributing to shrinkage prevention and minimisation efforts.

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How to Report Inventory Shrinkage in Financial Statements?

Inventory shrinkage is recorded in financial statements as an expense, typically under the category of Cost of Goods Sold (COGS) or as a separate line item, depending on the accounting method used. Here’s how shrinkage is recorded in financial statements:

As a Component of COGS

Under the accrual accounting method, when shrinkage occurs, it is recognised as a reduction in the value of inventory. This reduction is treated as an expense and is included in the COGS section of the income statement. It directly impacts the calculation of gross profit.

Separate Line Item in Expenses

In some cases, businesses may choose to report inventory loss as a separate line item in their income statement under operating expenses. This approach provides a clearer breakdown of expenses and allows for easier tracking and analysis of shrinkage over time. The income statement might include a line item like “Inventory Shrinkage Expense” or “Inventory Losses.”

Specific Accounting Treatment

Shrinkage may be recorded using specific accounting treatments depending on the circumstances and accounting standards followed by the business. For example, if the loss results from a sudden and unexpected event, it may be treated differently than routine shrinkage. Businesses should adhere to generally accepted accounting principles (GAAP) or other relevant accounting standards in their region when recording inventory shrinkage.

It’s important to note that the method used to record inventory shrinkage in financial statements can vary between businesses and industries. The chosen method should align with accounting standards and accurately reflect the impact of shrinkage on the company’s financial performance. Additionally, maintaining accurate records and documentation of loss incidents is essential for transparency and compliance with accounting regulations.

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Enhancing Inventory Management with Brytebuild

Brytebuild offers a comprehensive suite of inventory management tools designed to help businesses of all sizes minimise shrinkage and optimise their operations. Here’s how Brytebuild can support your inventory management efforts:

• Real-Time Inventory Tracking: Brytebuild provides real-time updates on inventory levels, movements, and costs, ensuring that you always have an accurate view of your stock.
• Barcode Scanning: Integrated barcode scanning capabilities streamline data entry, reduce errors, and enhance the accuracy of inventory records.
• Detailed Reporting and Analytics: Access detailed reports and analytics to identify trends, track shrinkage rates, and uncover potential issues before they escalate.
• Security Features: Implement robust security measures, including access controls and surveillance integration, to prevent both internal and external theft.
• Vendor Management: Conduct vendor audits and track supplier performance to mitigate the risk of vendor fraud and ensure you receive what you’ve ordered.
• User Training and Support: Brytebuild offers comprehensive training and support to ensure that your team can effectively use the system and maintain inventory accuracy.

Try Brytebuild Today

Experience the benefits of Brytebuild’s advanced inventory management features. Contact us for a demo or sign up for a free trial to see how we can help you minimise shrinkage and optimise your inventory processes.

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Key Takeaways

• Inventory Shrinkage: Occurs when the actual quantities in your inventory are smaller than what is recorded in your books or inventory management system.
• Common Causes: Include damage, spoilage, production errors, employee theft, shoplifting, vendor fraud, inventory miscounting, and administrative errors.
• Consequences: Financial loss, stockouts, overstocking, operational disruptions, damage to reputation, increased costs, and loss of competitiveness.
• Prevention Tips: Conduct regular inventory audits, train employees, implement security measures, conduct vendor audits, use proper stocktaking procedures, and implement inventory management software.
• Financial Reporting: Inventory shrinkage is typically reported as an expense in financial statements, either within the “Cost of Goods Sold” (COGS) section or as a separate line item under operating expenses.

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FAQs

What is inventory shrinkage?
Inventory shrinkage occurs when the actual quantities in your inventory are smaller than what is recorded in your books or inventory management system.

What common events could result in inventory shrinkage?
Common events that could result in inventory shrinkage include damage, spoilage, production errors, employee theft, shoplifting, vendor fraud, inventory miscounting, and administrative errors.

How to report inventory shrinkage in financial statements?
Inventory shrinkage is typically reported as an expense in financial statements, either within the “Cost of Goods Sold” (COGS) section or as a separate line item under operating expenses, depending on accounting practices.

How to calculate inventory shrinkage?
Inventory shrinkage can be calculated using the formula: Shrinkage Value = Inventory Value Record – Physical Inventory Value. To track shrinkage over time, you can calculate the Inventory Shrinkage Rate using the formula: Inventory Shrinkage Rate = (Shrinkage Value / Inventory Value Record) x 100.

Maintenance, Repair, and Operations (MRO) inventory consists of essential items that support the manufacturing process but aren’t directly part of any bill of materials. Proper management of MRO inventory is crucial to avoid work stoppages and ensure timely deliveries.

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Table of Contents

1. What is MRO Inventory?
2. Examples of MRO Inventory
3. Importance of MRO Inventory Management
4. Eight Steps for Effective MRO Inventory Management
5. KPIs for MRO Inventory
6. Enhancing MRO Management with Software
7. Key Takeaways
8. FAQs

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What is MRO Inventory?

MRO (Maintenance, Repair, and Operations) inventory includes various items necessary for manufacturing operations but not directly used in the production line. These items support the production process by ensuring safety, maintaining machinery, and keeping the work environment in optimal condition. Effective MRO inventory management prevents costly disruptions due to stockouts.

MRO inventory encompasses a broad range of items crucial for the smooth operation of manufacturing processes. Unlike raw materials or components that form part of the final product, MRO items indirectly support production. This category includes spare parts, consumables, personal protective equipment (PPE), cleaning supplies, office supplies, facility maintenance items, and fluids and chemicals. Proper management of these items ensures operational efficiency and safety, preventing interruptions in the production process.

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Examples of MRO Inventory

• Spare Parts: Critical components such as bearings, motors, and pumps that replace faulty machinery parts. These items are essential for minimising downtime and ensuring uninterrupted production. For instance, a conveyor belt system may require spare belts and rollers to be kept in stock.
• Consumables: Items like fasteners, lubricants, adhesives, and filters that need regular replenishment. Consumables are used up during the manufacturing process and require frequent restocking. Examples include screws, bolts, machine oil, and air filters.
• Personal Protective Equipment (PPE): Safety gear including helmets, gloves, masks, and protective clothing. PPE is vital for worker safety and compliance with health and safety regulations. Common items include high-visibility vests, earplugs, and safety goggles.
• Cleaning Supplies: Detergents, disinfectants, and cleaning tools for maintaining a clean work environment. Cleanliness in a manufacturing facility is critical for both safety and efficiency. Cleaning supplies might include industrial cleaners, sanitizers, and mops.
• Office Supplies: Administrative necessities like paper, pens, and printer cartridges. While these items are not directly involved in production, they are essential for the smooth operation of office tasks within the facility.
• Facility Maintenance Items: Essentials like light bulbs, batteries, safety signage, and HVAC filters. Maintaining the facility infrastructure is crucial for operational continuity. Items in this category ensure that the physical environment remains conducive to production activities.
• Fluids and Chemicals: Coolants, solvents, lubricants, and hydraulic fluids used in various processes. These substances are necessary for machinery operation and maintenance. For example, coolants are used to prevent machinery overheating, while solvents are used for cleaning parts.
• Packaging Materials: Items such as cardboard boxes, pallets, and cling film for product packaging and handling. Packaging materials may also be considered MRO inventory as they are essential for the final stages of production and distribution.

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Importance of MRO Inventory Management

Efficient MRO inventory management is vital for several reasons:

• Preventing Downtime: Ensures availability of critical items, reducing the risk of halting production. Downtime due to the lack of necessary MRO items can be costly and disruptive, impacting production schedules and customer satisfaction.
• Optimising Procurement: Strategic procurement practices minimise costs and streamline supply chains. By forecasting demand and negotiating with suppliers, businesses can achieve better pricing and reduce lead times.
• Reducing Inventory Costs: Controls stock levels to avoid overstocking, reducing storage and handling costs. Overstocking ties up capital and increases the risk of obsolescence, whereas understocking can lead to operational delays.
• Supporting Production: Maintains smooth operations by ensuring machinery and facilities are well-maintained. Regular maintenance supported by adequate MRO inventory ensures that equipment runs efficiently and with minimal risk of failure.
• Increasing Profitability: Minimises breakdowns, optimises maintenance schedules, and reduces unnecessary expenses. Efficient MRO management contributes to the overall profitability by enhancing operational efficiency and reducing waste.
• Tailoring for Small Businesses: Small businesses can benefit significantly from streamlined MRO management due to limited resources and storage space. Effective MRO practices can help small businesses maximise their operational efficiency and competitiveness.
• Facilitating Maintenance: Ensures availability of supplies necessary for preventive maintenance activities. Preventive maintenance is critical for avoiding unexpected breakdowns and extending the lifespan of equipment.

In summary, effective MRO inventory management is essential for minimising downtime, controlling costs, supporting production processes, and ultimately increasing profitability, making it a critical aspect of business operations in the manufacturing industry.

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Eight Steps for Effective MRO Inventory Management

1. Identify MRO Items: Categorise items based on usage, criticality, and impact on operations. Clearly defining what constitutes MRO inventory helps in organising and managing these items more effectively.
2. Forecast Demand: Use historical data, maintenance schedules, and anticipated needs to predict demand. Accurate demand forecasting helps in planning procurement and stocking levels, ensuring that necessary items are always available.
3. Plan for Replenishments: Determine optimal reorder intervals and set reorder points for consistent replenishment. Planning for replenishments involves establishing a balance between having enough stock to meet demand and avoiding excess inventory.
4. Establish Safety Stock Levels: Define safety stock for critical items to prevent stockouts. Safety stock acts as a buffer against unexpected increases in demand or delays in supply, ensuring that critical MRO items are always available.
5. Manage Suppliers: Build relationships with reliable suppliers and streamline procurement processes. Effective supplier management involves negotiating favourable terms, ensuring timely deliveries, and maintaining good communication with suppliers.
6. Organise Inventory: Designate storage areas for easy access and proper labelling. Organised storage helps in quickly locating MRO items, reducing the time spent searching for supplies and preventing stockouts due to misplaced items.
7. Track Inventory: Implement barcode systems or inventory management software for efficient tracking. Modern inventory management systems provide real-time data on stock levels, usage patterns, and procurement needs, helping in better decision-making.
8. Review Regularly: Regularly assess inventory levels, usage patterns, and procurement processes for continuous improvement. Periodic reviews help in identifying areas for improvement, adjusting inventory levels, and optimising procurement strategies.

By following these basic steps, organisations can establish effective MRO inventory management practices to support maintenance activities, minimise downtime, and ensure the smooth operation of machinery and facilities.

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KPIs for MRO Inventory

Tracking key performance indicators helps assess the effectiveness of MRO inventory management:

• Stockout Rate: Percentage of time critical items are unavailable. This KPI indicates the effectiveness of inventory management in preventing stockouts and minimising downtime.
• Inventory Turnover: Frequency of inventory replenishment within a period. A high turnover rate indicates efficient inventory management, whereas a low turnover rate may suggest overstocking or slow-moving inventory.
• Carrying Costs: Total costs of holding and managing inventory. This includes storage, handling, and obsolescence costs, and indicates the efficiency of inventory management in minimising unnecessary expenses.
• Supplier Performance: Metrics on delivery times, quality, and reliability. Evaluating supplier performance helps in ensuring that MRO items are sourced reliably and on time.
• Forecast Accuracy: Discrepancy between forecasted and actual demand. Accurate demand forecasting is crucial for effective MRO management, and this KPI helps in assessing and improving forecasting methods.

By tracking these MRO-related KPIs, manufacturers can gain insights into the effectiveness of their inventory management processes, identify areas for optimisation, and make informed decisions to improve operational efficiency and minimise costs.

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Enhancing MRO Management with Software

Utilising inventory management software, such as Brytebuild, can significantly enhance MRO inventory control:

• Clear Classification: Properly classify MRO items within the software. This distinction ensures MRO items are accounted for in procurement and invoicing processes without being tracked as regular inventory.
• Streamlined Procurement: Use software to create purchase orders and manage procurement processes. Streamlined procurement processes reduce administrative workload and ensure timely acquisition of necessary MRO supplies.
• Cost Tracking: Track expenses and vendor payments for accurate cost management. Inventory management software provides tools to monitor and analyse costs associated with MRO items, contributing to financial visibility and control.
• Integration with Production: Synchronise data across procurement, finance, and operations. Integrating inventory management with production planning ensures seamless communication and coordination between different business processes.
• Real-Time Reporting: Monitor key metrics and KPIs to make informed decisions. Real-time reporting and analytics tools help in tracking procurement lead times, vendor performance, and spending trends, enabling better decision-making.
• Vendor-Managed Inventory (VMI): Collaborate with suppliers for timely stock replenishment. VMI programs allow suppliers to monitor MRO inventory levels and replenish stock as needed, reducing administrative burden and ensuring consistent supply.

With Brytebuild’s comprehensive warehouse management system, you can streamline your MRO inventory management processes, ensuring you have the right items at the right time. From barcoding systems with QR code scanning to inventory tracking and live stock quantity updates, Brytebuild provides the tools necessary for efficient MRO management.

Additionally, Brytebuild’s 3D warehouse viewer allows you to live locate any items and design your warehouse layout effectively, enhancing operational efficiency. The scheduling system enables you to plan and assign jobs seamlessly, ensuring all maintenance and operational tasks are performed on time.

By effectively leveraging inventory management software like Brytebuild, manufacturers can streamline procurement processes, track costs accurately, and ensure the availability of essential supplies for maintenance activities without the complexities of traditional inventory management.

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Key Takeaways

• MRO Inventory: Includes items like spare parts, consumables, PPE, and cleaning supplies essential for manufacturing.
• Management Importance: Prevents downtime, reduces costs, supports production, and enhances profitability.
• Management Steps: Identification, demand forecasting, replenishment planning, safety stock levels, supplier management, organisation, tracking, and regular review.
• KPIs: Track stockout rate, inventory turnover, carrying costs, supplier performance, and forecast accuracy.
• Software Utilisation: Enhances MRO management with efficient tracking, procurement, cost management, and real-time reporting.

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FAQs

What does MRO stand for?
MRO stands for Maintenance, Repair, and Operations.

How can small businesses manage MRO inventory effectively?
By prioritising critical items, using efficient procurement practices, optimising storage, and leveraging tailored inventory management software.

How to determine reorder points and safety stocks manually?
Analyse historical usage, consider procurement lead times, assess item criticality, and establish buffer stock levels based on risk tolerance and demand variability.

Effective warehouse management is crucial for any business that relies on a robust supply chain. Poor management can lead to bottlenecks, increased costs, and ultimately, dissatisfied customers. In this guide, we’ll explore how Brytebuild, an advanced MRP system, can streamline your warehouse operations, improve staff scheduling, and enhance overall productivity.

Optimising Stock Levels with Real-Time Inventory Tracking

One of the key aspects of efficient warehouse management is maintaining optimal stock levels. Holding excess inventory can tie up capital, while insufficient stock can lead to missed sales opportunities. Brytebuild’s real-time inventory tracking system provides live updates on stock quantities, allowing you to keep just the right amount of inventory. With QR code scanning, you can track every item in your warehouse, ensuring nothing gets lost or misplaced.

Why Stock Optimisation Matters: Proper stock levels mean you can respond swiftly to market demands without overburdening your warehouse with excess stock that incurs additional holding costs. This balance is essential for maintaining a lean and efficient operation. According to a study by the Chartered Institute of Logistics and Transport (CILT), businesses that optimise their inventory can reduce their costs by up to 20% .

Enhancing Sales Order Processing

Speed and accuracy in processing sales orders are vital for customer satisfaction. Brytebuild integrates seamlessly with your sales order management system, covering everything from goods in, picking, production, packing, to goods out. This end-to-end tracking ensures that orders are fulfilled accurately and promptly, reducing the risk of errors and delays. By linking warehouse management directly to sales orders, you can ensure a smooth and efficient process from order receipt to dispatch.

The Importance of Swift Order Processing: A report by McKinsey highlights that companies with streamlined sales order processing experience 2-4% higher growth in customer satisfaction scores and up to 12% reduction in operational costs . By enhancing your sales order processing, you can improve your overall service levels and operational efficiency.

Controlling the Movement and Storage of Materials

Accurate control over the movement and storage of materials within your warehouse is essential for efficient operations. Brytebuild’s warehouse management features include a 3D warehouse viewer, which allows you to visualise and design your warehouse layout. This tool helps in optimising space utilisation and streamlining the storage process. Additionally, the barcode system ensures that all items are correctly tracked and stored, reducing the chances of misplacement and facilitating easier retrieval.

Optimised Space Utilisation: Effective use of space can significantly impact your warehouse efficiency. Studies have shown that well-organised warehouses can improve picking efficiency by up to 30% . By utilising tools like the 3D warehouse viewer, you can ensure that every inch of your warehouse is used effectively.

Efficient Processing of Warehouse Transactions

For a warehouse to function optimally, all associated transactions must be processed efficiently. Brytebuild supports the entire range of warehouse activities, including shipping, receiving, put-aways, picking, and replenishment. Its advanced reporting and analytics tools provide insights into your warehouse operations, helping you identify bottlenecks and inefficiencies. By automating these processes, Brytebuild reduces manual errors and speeds up transaction times.

The Role of Automation in Warehousing: Automation in warehousing is not just a trend but a necessity. According to a report by Deloitte, warehouses that implement automation technologies can achieve up to 40% increase in throughput and 30% reduction in labour costs . Brytebuild’s automation capabilities can significantly enhance your warehouse efficiency.

Integrating Warehouse Management with Sales Order Processing

Warehouse management is not an isolated function; it needs to be integrated with sales order processing and logistics management. Brytebuild’s comprehensive system ensures that your warehouse operations are closely linked with sales orders. This integration facilitates the pick, pack, and ship processes, ensuring that products move out of your facility efficiently and accurately. By synchronising these functions, Brytebuild helps in maintaining a seamless supply chain, ultimately leading to higher customer satisfaction.

Integrated Systems for Better Performance: Integrated systems ensure that data flows seamlessly between different departments. A study by Forrester found that businesses with integrated supply chain and warehouse management systems report up to 15% improvement in order fulfilment rates . This integration helps in reducing delays and improving overall operational efficiency.

Discover the Full Potential of Brytebuild in Warehouse Management

Brytebuild is more than just a warehouse management system. It offers a wide range of features designed to improve every aspect of your business operations, from work instructions and staff scheduling to sales order management and advanced analytics. Whether you’re a small business or a large enterprise, Brytebuild can be tailored to meet your specific needs.

Ready to revolutionise your warehouse management? Explore the full range of features Brytebuild offers or contact us today to see how we can help streamline your operations. Visit Brytebuild to register or learn more about our solutions.

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