Strategies for Inventory Management in Manufacturing

Inventory management in manufacturing goes far beyond knowing how many items sit in a warehouse. It involves tracking materials across every stage of production, from sourcing raw materials to managing work-in-progress and delivering finished goods.

When inventory processes break down at any point—whether due to supply delays, inaccurate stock data, or poor coordination—manufacturers feel the impact immediately. Cash flow tightens, production slows, and customer commitments become harder to meet.

This is why inventory management in manufacturing plays such a critical role in operational stability. According to Fortune Business Insights, manufacturers are among the leading adopters of inventory management software, driven by the need for precise timing and production efficiency. The manufacturing sector holds a 28% global market share for inventory software usage. 

In this guide, you’ll learn practical manufacturing inventory management strategies that help reduce excess stock, prevent shortages, and keep production running smoothly without adding unnecessary complexity.

What is inventory management in manufacturing?

In manufacturing, inventory refers to the materials and products a company holds to support production and sales. This includes raw materials, partially completed items, and finished goods awaiting distribution.

Inventory management in manufacturing is the structured process of monitoring these materials, planning replenishment, storing items efficiently, and ensuring products move through production without disruption. Unlike retail, manufacturing inventory must support multiple production stages, each with different timing and resource needs.

Manufacturers rarely produce items in a single, continuous flow. Components may pause at certain stages, wait for assembly, or move between facilities. Without a reliable manufacturing inventory management system, it becomes difficult to know what is available, what is in progress, and what needs replenishment.

Poor inventory visibility is one of the most common reasons manufacturing operations struggle. Inaccurate data leads to missed production schedules, rushed purchases, and unnecessary holding costs. On the other hand, accurate inventory control supports better planning, balanced supply and demand, and healthier financial performance.

This is why manufacturers increasingly rely on inventory management software for manufacturing to maintain order across production stages and make informed decisions based on real-time data.

What are the types of inventory in manufacturing?

To apply effective inventory management in manufacturing, it’s important to understand the different categories of materials involved in the production process. Each type plays a distinct role and requires a different level of tracking and control within a manufacturing inventory management system.

1. Raw materials

Raw materials are the primary inputs required to begin production. These materials are sourced from suppliers and converted into components or finished products during manufacturing.

Examples include cotton for textile production, wood for furniture manufacturing, flour for bakeries, and steel for equipment manufacturers. Since raw materials directly affect production continuity, manufacturers must ensure availability without accumulating excess stock.

Using a structured manufacturing inventory management system helps manufacturers monitor incoming materials, track usage rates, and align replenishment with production schedules. This prevents delays caused by shortages while keeping storage costs under control.

2. Work-in-Progress (WIP)

Work-in-progress includes materials that have entered the production cycle but are not yet completed. These items may be waiting for assembly, processing, or quality checks before moving to the next stage.

Managing WIP effectively is essential for maintaining production flow. When partially completed items sit idle for too long, they tie up capital and slow throughput.

With inventory management software for manufacturing, manufacturers can track WIP status in real time, monitor production bottlenecks, and estimate completion timelines more accurately. This visibility supports smoother scheduling and better use of resources.

3. Finished goods

Finished goods are fully manufactured products ready for sale or distribution. At this stage, production costs have already been incurred, making it especially important to align finished goods availability with customer demand.

Poor management at this stage often leads to overstocking or missed delivery commitments. By applying inventory management strategies for manufacturing, businesses can maintain optimal finished goods levels while avoiding unnecessary storage and handling costs.

Manufacturers using manufacturing inventory software can connect finished goods data directly to order management and demand forecasting, improving fulfillment accuracy and customer satisfaction.

4. Supporting materials and supplies

In addition to production materials, manufacturers also manage supporting items such as packaging materials, labels, spare parts, and maintenance tools. While these items may not be part of the final product, shortages can still disrupt operations.

Tracking these materials within the same manufacturing inventory management system ensures continuity across production and logistics without relying on manual checks or last-minute purchases.

Common inventory management techniques

Manufacturing companies use common inventory management techniques to monitor, control, and upgrade inventory levels. These strategies ensure that the production line is always active and capable of fulfilling orders in a timely and cost-effective manner. By applying the techniques mentioned below, manufacturers improve production efficiency and perfectly align supply with demand. 

1. Demand forecasting

Demand forecasting focuses on predicting future product requirements, which will help manufacturers gather and stock the right amount of inventory on time. The demand forecasting technique is followed by taking into consideration the previous sales data, current market trends, and other predictive insights to estimate the required amount of raw materials, WIP, and finished goods. Accurate demand forecasting will help businesses eliminate overproduction and underproduction situations and minimize stockouts and excess inventory conditions. 

For example, with the upcoming Christmas and New Year, decorative light manufacturers can analyze past sales trends and new product release schedules to predict the demand for major lighting components. This will confirm that the right materials are available at the right time. 

2. Determination of optimal stock level

Determining the optimal inventory level means setting up the necessary amount of stock to manage production flow while decreasing the cost. By using this technique, businesses can avoid the issues of holding too little or too much inventory. For optimal inventory, manufacturers also use strategies like Just-in-Time (JIT) and Economic Order Quantity (EOQ) to define reorder points and purchase quantities. These approaches are most effective when inventory data is accurate and consistently updated.

For example, a car manufacturer can determine and calculate the optimal number of tires to keep in inventory, depending on production schedules and suppliers’ lead time, so there is enough stock without excessive holding. 

3. Inventory control & tracking

Inventory control focuses on monitoring how materials move from suppliers through production and into finished goods storage. This includes tracking usage, transfers, and stock adjustments across locations.

Techniques such as barcode scanning, RFID tagging, and automated stock updates reduce reliance on manual entry and improve accuracy. These methods are commonly embedded into manufacturing inventory software, allowing teams to track material movement without disrupting daily operations.

For example, a food manufacturer can use inventory control techniques like RFID tags to track food ingredients and use them before expiration, reducing waste and guaranteeing the freshness of finished products. 

Accurate inventory control supports better planning, fewer errors, and stronger coordination between production and operations teams.

Top 5 inventory management methods

Manufacturers use different methods to control stock, plan production, and reduce waste. The right approach depends on product type, production volume, and demand patterns. These methods are often combined as part of broader manufacturing inventory management strategies. After all, inventory management is an important part of a manufacturing business, and using the right tools and techniques lowers the product stocking cost and guarantees business success. Here are the top 5 methods that businesses can use to get started. 

1. ABC analysis

ABC inventory management, or ABC analysis, is a method that categorizes inventory into three basic groups based on their importance in the production line and is calculated by their consumption value and contribution to business revenue, such as:

Category A: High-value items that cover a large portion of a company’s inventory but are used in small quantities are placed in category A. 

Category B: This category includes moderately valued items that are most frequently used, but their overall value is less than that of the latter category. 

Category C: This category is for low-valued items that account for most inventory but do not have a big financial impact. 

The ABC ranking of items into categories is based on demands, costs, and risks. This method helps manufacturers prioritize monitoring and control efforts instead of treating all materials the same.

2. Batch tracking

It allows manufacturers to monitor product stock when it moves through different stages of production. The batch tracking method is pretty useful for quality control because it’s easy to track the origin of defects in small batches, manage recalls, and maintain compliance.  

3. Cycle counting

The cycle counting method involves auditing inventory regularly in smaller and more manageable sections instead of performing a full inventory count at once. This is done to maintain accurate inventory throughout the year without delaying daily operations(production). 

It works best when supported by a manufacturing inventory management system that highlights discrepancies quickly.

4. Materials requirement planning (MRP)

MRP is a system that plans and manages inventory based on production schedules. Following material requirement planning, manufacturers can calculate the total amount of material needed, their quantities, and the appropriate time for replenishment based on current stock levels, as well as anticipate production demand. 

This method is often built into inventory management software for manufacturing and ERP systems.

5. Perpetual inventory management

The perpetual inventory management method involves real-time tracking of inventory levels using smart, automated systems like RFID tags and barcode scanners. Following this method will provide accurate and up-to-date inventory levels in no time and help detect errors quickly. Moreover, a perpetual inventory management system offers extensive benefits over traditional tools and techniques, such as real-time visibility of the inventory stocks and automated inventory listings.  

Each of these discussed methods has its pros and cons, so businesses need to choose the right method based on their specific requirements. However, choosing the right technique will depend on several factors, including the type of product your company manufactures, customer demand, and your budget. 

Also read: How to make use of Excel for inventory management in jewelry businesses

Manufacturing inventory management strategies

We already discussed 5 methods for inventory management, but some other smart strategies that you can use to manage inventory efficiently are: 

1. Just-in-time (JIT)

The just-in-time strategy focuses on keeping as little stock as possible before reordering materials for a production run. By doing so, business owners don’t have to worry about having large storage spaces or managing large inventories. Plus, it will also save the production cost of manufacturing extra finished items. However, if businesses choose a JIT strategy, they must have a highly reliable supply chain that can deliver materials quickly and not disrupt or delay production. 

2. Economic order quantity (EOQ)

The economic order quantity model is a formula-driven approach that assists businesses in determining the optimal and accurate order quantity for their inventory. To do this, businesses must consider several expense factors, such as holding and ordering, to find the most economical way to manage stock levels. 

The EOQ strategy is implemented to balance the purchase order with the storage cost so that manufacturers can order the right amount of inventory at the right time. 

3. Activity-based costing (ABC)

It is another ABC strategy for effective manufacturing inventory management. Here, products are priced based on the resources they consume. This particular approach accurately represents the true cost of manufacturing each product and helps manufacturers decide where to reduce costs and save money. 

Best practices in manufacturing inventory management

Managing manufacturing inventory is always difficult, so there is a constant demand for improving manufacturing inventory management. Even though there are several techniques and strategies, item shortage and re-production still need to be countered. These tips will help you improve manufacturing inventories in a much better way. 

1. Implement lean manufacturing

Lean manufacturing is an inventory-pulling approach that streamlines the production process by reducing product waste. This includes actively fixing production issues to improve WIP inventory. Lean manufacturing is implemented properly by aligning production with demand to reduce storage costs. 

Benefits:

• Reduces unnecessary inventory and product waste
• Improves production line with quick response time
• Eliminates non-valued items to reduce operational costs.

2. Conduct regular inventory audits

Regular inspection of inventory guarantees that the inventory records match the physical inventory accurately. This is best for quality control, as item thefts are detected easily. However, there are several ways to conduct inventory audits, such as counting everything at once, cycle counting, or just a few times a year. 

Benefits:

• Improves inventory accuracy
• Identifies loss, misplacements, and thefts
• Helps with demand planning

3. Prioritize continuous improvement

With constantly changing market demand, it is important to regularly review and refine the inventory management strategy to stay ahead of the market. What if you stocked certain raw materials in bulk for months, but after a few weeks, the market demand changed, and now you are left with unused inventory and excess holding costs? 

To avoid such a situation, it is important to regularly analyze inventory performance and adjust methods so that your business can adapt to changing market conditions without facing loss. 

Benefits:

• Provides flexibility and adaptability to changes in demand and supply
• Helps identify and address inefficiencies over time
• Leads to innovation in inventory management practices

4. Utilize manufacturing inventory software

Manufacturing inventory software is introduced to upgrade the standard manual methods and offer real-time tracking and control of inventory stocks. These inventory software systems are automated systems that include barcode scanning and tagging to help process inventory quickly and accurately. Introducing automation in manufacturing has several other benefits, too, like allowing staff to focus on value-added work rather than wasting time on repetitive tasks. Plus, the inventory management software also offers detailed data analysis and reports that encourage data-driven decision-making, ultimately increasing business revenue. 

Benefits:

• Improves visibility and control over inventory 
• Automates tasks and reduces manual errors
• Gives real-time data for better decision-making and demand forecasting.

5. Use supporting tools

Alongside software, additional tools like barcode scanners, RFID tags, and production planning systems improve inventory accuracy and efficiency.

Benefits:

• Speeds up inventory tracking and audits
• Reduces mistakes from manual entry
• Provides detailed reporting for better decision-making

Common manufacturing inventory management tools

Since we are on the topic of automated inventory management tools and techniques, it is important to note that today, modern tools and advanced inventory planning software are available to optimize inventory processes. These tools include barcode scanners, RFID tags, and automated inventory software. 

1. Barcode scanners

Credits: Inventory Pro

Barcode scanners are not a new term in the e-commerce space; they are widely used in manufacturing facilities to improve productivity and accuracy in inventory control. 

Each item in an inventory is labeled with a unique barcode and scanned at various production and storage stages to determine the stock level. This method eliminates manual data entry and speeds up the inventory tracking process. 

2. RFID tags

Credits: Robots.net

Radiofrequency identification (RFID) tags are small stickers with chips inside. These smart tags automate the inventory management task using wireless technology to track items. It’s a part of an RFID system that includes RFID readers. Each product is labeled with RFID tags in large inventory storage spaces, and a few RFID readers are installed around the storage space. So when the team wants to find the location of a specific item, they can simply search for it on the software, and the RFID reader will scan the particular tag to determine the product’s location, giving detailed location information. 

3. Inventory and production planning software

Inventory and production planning software links inventory management with overall production operations, production schedules, production flow, and demand forecasting. These tools allow manufacturers to plan inventory levels, automate restocking, and increase overall productivity. 

In the above three inventory management tools, the first two- barcode scanners and RFID tags require high implementation and setup costs; however, using advanced inventory and production planning software like ERP comes with zero to little implementation cost and sets up in minutes. 

These tools form the backbone of effective manufacturing inventory management strategies. But even with the best software and hardware, manufacturers often face challenges such as fragmented systems, manual data entry, or delayed insights. To overcome these challenges, businesses need a platform that integrates all inventory tools seamlessly, adds automation, and provides real-time analytics.

WizOrder: Connecting inventory systems with sales and order management

Even with reliable inventory management software in place, many manufacturers still struggle to keep sales orders, pricing, and stock availability in sync across teams. WizCommerce, with its WizOrder app, simplifies this by giving teams and customers real-time visibility into stock, product variants, and pricing.

WizOrder is not an inventory management system. However, it integrates with existing manufacturing inventory software such as Fishbowl and ERP systems to give sales teams real-time access to accurate stock data, product variants, and pricing while taking orders.

With WizOrder, sales reps can place orders confidently, knowing they are working with live inventory data pulled directly from connected systems. Orders sync automatically with ERP and inventory platforms, reducing manual entry, minimizing errors, and helping production teams plan based on actual demand

Key features include:

• Real-time inventory visibility across all channels
• Automated syncing of purchase orders and stock updates
• Live product catalogs with accurate pricing and variants
• Quick access for sales reps in the field or online
• Data insights for smarter production and demand forecasting

By integrating WizCommerce with your ERP and CRM software, connecting inventory, production, and sales in one platform, your teams can work faster, reduce mistakes, and respond to market changes with confidence.

Book a demo today and experience how WizOrder works alongside your inventory management software to optimize stock management, improve order accuracy and operational efficiency. 

FAQs about inventory management in manufacturing

What are the 5 stages of the inventory management process?

The 5 stages of the inventory management process include demand planning, purchasing raw materials, receiving and storing stock, tracking inventory through production, and distributing finished goods to customers.

What is the first rule of inventory management?

The first rule of inventory management is maintaining clear, accurate visibility into what stock you have, where it is located, and how it is being used across production stages.

What are the three inventory accounts used by a manufacturer?

The three inventory accounts used by a manufacturer are raw materials, work-in-progress (WIP), and finished goods, each representing a different phase of the manufacturing lifecycle.

What is the golden rule for inventory?

The golden rule for inventory is keeping the right quantity of stock at the right time so production runs smoothly without excess holding costs or stock shortages.

How do manufacturers manage inventory?

Manufacturers manage inventory by using forecasting, control techniques, manufacturing inventory management strategies, and inventory management software for manufacturing to balance supply, production, and demand.