You can never have too much inventory, right? It means you’re able to keep the production cycle going and can fulfill all orders, ensuring your customers are happy and you don’t create a backlog.
But that inventory costs money. You have rent and bills to pay, as well as employees whose job it is to receive, store, organize, and track all of that inventory. You might be able to survive and keep everyone happy, but only at the expense of a higher operating cost. You’ll also be flirting with disaster—straddling a line that leaves you one downturn away from ruin.
Proper inventory management, therefore, is essential for keeping your business ticking over and your profit margins high.
How Do You Know If You Have Bad Inventory Management?
Bad inventory management, like everything else in business, is something that can pass you by. You get so used to doing things a certain way that you don’t see the signs, even when they are right in front of you. To a steel and metal fabrication company, bad inventory management might reveal itself in the following ways:
- High Storage Costs: The average cost of inventory management is around 15-30% of the stock value. If your costs are much higher, it could indicate that you have a problem.
- Low Turnover: If the stock is not going out, it means you are overstocked, and all those extra materials are driving up your expenses.
- Frequent Stockouts: Over-stocking isn’t the only problem. If you find that you’re regularly running out of raw materials or constantly switching from being overstocked to understocked, it’s time to change.
- Obsolete Inventory: You don’t want to hold on to obsolete inventory, and the fact that you have it to begin with suggests that you bought too much or purchased at the wrong time.
The Risks of Bad Inventory Management
The disadvantages of bad inventory management aren’t always clear, but they are always destructive to your bottom line:
The Loss of Capital
One of the biggest issues with bad inventory management is the impact on your capital
If you bought materials using a line of credit, you’ll be paying interest to hold something that you can’t sell or use right now. If you bought them with cash, you’re still losing out by not accumulating interest on that money and not investing it in something that can generate a positive cash flow (such as marketing and software upgrades).
Storage Costs
Mortgage and rental costs should always be considered when calculating the financial impact of poor inventory management, but the problem runs much deeper than that.
There are upkeep costs, air conditioning/heating costs, handling charges, and janitorial services. Even lighting has to be considered—it all forms part of a very costly equation.
The Price of Risk
In the metal framing and metal fabrication sector, you don’t need to worry too much about perishables. However, there are still risks of carrying too much inventory. Items could become obsolete, whether because products won’t sell or because you no longer need the materials for the production process.
Times change, and trends change with them. If the industry suddenly decides that it doesn’t like what you’re making or selling, you’re forced to pivot, at which point all of that stock could become obsolete.
Materials may also depreciate over time, losing their value to you and your customers.
How to Implement Proper Inventory Management
RealSTEEL™ is a complete business management solution designed with the steel and metal fabrication industry in mind. It provides you with an easy and efficient way to handle your procurement, inventory, production, and delivery, with real-time insights into each step of the process.
Here are some of the ways that RealSTEEL™ can help you to properly manage your inventory:
Track Your Metal Inventory
Our metal inventory software tracks the attributes of all of your stock, including the chemical makeup, weight, and dimensions. This makes it easier to reserve specific items for certain jobs or keep them in stock for later.
Track the Lifespan of Materials
Our easy-to-use dashboard tracks the parent/child lineage of every item. You will have complete visibility throughout a product’s lifecycle. It makes the production process easier and also keeps your customers in the loop.
Accurate Quantities
Every item is accounted for from the moment it is received to the time it is used. As a result, you’ll know exactly what’s available for the production process and which materials would be best suited. You can use the materials that you have available before resorting to ordering more.
Bar Code Labeling
Adding an item to the system is easy. There’s no need to manually input numbers—just scan it. You can also generate bar codes with a few clicks for both the raw materials and end products.
Predict Trends
You know how many materials you need right now, but what about several weeks or months down the line? Being able to accurately predict demand means you can act proactively and not reactively. Rather than running low on essential materials and then clambering to fulfill orders, our software can help you predict future demands using predictive analysis.
Automated Data Collection
Metal fabrication companies don’t always have the space they need, so materials are often stored in metal service centers. Using RealSTEEL™, you can track all of these items accurately and in real-time, ensuring prompt and timely deliveries. There’s no last minute scramble and no need to rush orders at the expense of quality.
Improve Your Inventory Management with RealSTEEL™
A metal fabrication company needs a constant cycle of production—materials are stocked, used, and then sold in a never-ending chain. Inventory is the fuel that keeps this process alive, and proper inventory management ensures it burns steadily.
So, if you think that you might be suffering from bad inventory management, contact us for a solution. We offer customized, scalable Enterprise Resource Planning (ERP) software designed around your business and your specific needs.
We can help you to get your inventory in check while also incorporating other aspects of your businesses (coil processing software, metal service center software, metal nesting software, human resources, financing) into a single, manageable, optimized source that provides real-time updates.
Get in touch today to set up a software demo.
