The requisition slip was signed on Sunday.

The fabric went to the cutting floor on Monday. By Thursday, it still had not been posted properly to the store register. The warehouse record showed one position, while the physical rack showed another.

Month-end costing eventually closed on a number that nobody fully trusted.

Three people then had to rebuild the same material movement across different spreadsheets to understand what actually happened.

This is how inventory problems usually appear in a factory. Not as one dramatic failure, but as a gradual disagreement between what the system says, what the warehouse holds and what production actually consumed.

That disagreement affects working capital, production continuity, costing and management reporting.

Effective inventory management in manufacturing is therefore not simply about knowing how much stock exists.

It is about knowing:

• What material the factory owns
• Where it is located
• Who received it
• What was issued
• Which production order consumed it
• What remains in WIP
• What was returned or rejected
• What the physical stock actually looks like
• Whether the financial value matches the operational record

The goal is simple: keep physical inventory, operational records and financial records aligned.

What Is Inventory Management in Manufacturing?

Inventory management in manufacturing is the process of controlling materials from the moment they enter the factory until they are consumed, converted into finished goods or dispatched.

It normally covers four connected activities:

Receiving → Storage → Issue/Consumption → Reconciliation

A factory therefore needs to control more than quantity.

It also needs to control:

• Location
• Unit of measure
• Batch or lot
• Ownership
• Cost
• Movement history
• Production reference
• Physical balance

A stock report can tell you that the system says 5,000 kg of material exists.

Good inventory management tells you whether those 5,000 kg are physically present, where they are, how much has been issued to production and whether the remaining balance is actually usable.

That distinction is the foundation of inventory control in manufacturing. Pasted text

The 4 Types of Inventory in a Manufacturing Factory

A factory does not have one single type of inventory.

Each category creates different control problems.

Inventory Type	Typical Examples	Common Risk	Useful KPI
Raw Materials	Fabric, yarn, chemicals, packaging	Unrecorded issue or unit mismatch	Stock accuracy
WIP	Cut panels, semi-finished goods	Jobs remain open after production	WIP ageing
Finished Goods	Packed products, cartons	Invoiced but not dispatched	Dispatch gap
MRO & Spares	Bearings, belts, electrical parts	Not counted until breakdown	Spare availability

This classification is particularly relevant to RMG and process manufacturers because material does not simply sit in a warehouse. It moves through different physical and accounting stages.

The provided knowledge base uses the same four-category structure and identifies different failure modes for each. Pasted text

Why Inventory Management Matters in Manufacturing

Poor inventory management in manufacturing creates problems far beyond the warehouse.

Working Capital Gets Trapped

Excess stock ties up cash.

A factory may have plenty of packaging material sitting in storage while simultaneously struggling to finance material required for the next confirmed order.

For manufacturers dealing with imported inputs, supplier lead times and clearing delays, inventory levels are also a working-capital decision.

Production Can Stop Even When the System Shows Stock

One of the most frustrating situations is:

System stock: Available

Physical stock: Not available

The production line then waits for material that the report says already exists.

This is usually a transaction-control problem rather than a simple counting problem. Pasted text

Costing Becomes Less Reliable

If material issues, returns and WIP consumption are posted late, the cost of production cannot be calculated accurately at the time management needs it.

That creates a chain reaction:

Wrong material movement → Wrong inventory value → Wrong costing → Weak margin visibility

The business may only discover the real cost after the production decision has already been made.

Reconciliation Consumes People

When store, production and accounts maintain separate records, employees spend time comparing spreadsheets instead of managing inventory.

As the number of SKUs, lines, godowns and production orders increases, this manual reconciliation becomes increasingly difficult to sustain. Pasted text

7 Proven Inventory Management Techniques for Manufacturing

There is no single technique that solves every inventory problem.

A better system combines classification, stock rotation, replenishment, counting and transaction control.

1. ABC Analysis: Focus on the Inventory That Matters Most

ABC analysis classifies inventory according to consumption value so that the most financially important items receive tighter control.

A commonly used structure is:

Class	Approx. Share of Items	Approx. Share of Value	Control
A	10–20%	70–80%	Tight
B	20–30%	15–25%	Moderate
C	50–70%	5–10%	Basic

These percentages are not universal rules. They are a practical classification starting point. IBM’s inventory documentation similarly describes ABC analysis as a way to identify items representing the greatest monetary investment and notes that organisations can define their own breakpoints. IBM

For a Bangladeshi garment factory, imported fabric and specialised trims may deserve much tighter review than low-value consumables.

The point is not to count everything with the same frequency.

The point is to spend the most control effort where inventory value and operational risk are highest. Pasted text

2. Use FIFO, FEFO and Batch Control Where Appropriate

FIFO means First In, First Out.

It is useful where older stock should normally be consumed before newer stock.

FEFO means First Expired, First Out.

It becomes particularly relevant when materials have expiry dates or limited shelf life, such as food, pharmaceutical and certain chemical inputs.

Batch tracking adds another layer of control by allowing the factory to identify:

• When material was received
• Which supplier supplied it
• Which batch it belongs to
• Where it was stored
• Where it was issued

The important point is that FIFO and FEFO are not interchangeable rules. The correct method depends on the material and its operational characteristics.

3. Calculate Safety Stock Using Real Lead-Time Data

Safety stock protects the factory against variability in demand or supply.

A simple illustrative formula used in the source material is:

Safety Stock =
(Maximum Daily Usage × Maximum Lead Time)
− (Average Daily Usage × Average Lead Time)

Consider a factory that consumes 500 kg of packaging material per day.

Suppose:

• Average lead time = 7 days
• Maximum lead time = 14 days
• Daily usage = 500 kg

Then:

Maximum demand during lead time

500 × 14 = 7,000 kg

Average demand during lead time

500 × 7 = 3,500 kg

Illustrative safety stock

7,000 − 3,500 = 3,500 kg

But this should not be treated as the only valid safety-stock formula.

Modern inventory systems can calculate safety stock using demand variability, lead-time variability and target service levels. Oracle’s current documentation, for example, uses demand variability, lead time and service-level inputs in its safety-stock calculations. Oracle Docs

So the practical lesson is:

Use a formula appropriate to your demand and lead-time behaviour, and base it on real factory data.

The provided source correctly emphasises using actual worst-case lead time rather than relying blindly on supplier promises. Pasted text

4. Set Reorder Levels and Min-Max Limits

A reorder point tells the business when replenishment needs to be triggered.

A simple formula is:

Reorder Point = Demand During Lead Time + Safety Stock

For example:

Average daily usage = 500 kg
Average lead time = 7 days
Safety stock = 3,500 kg

Demand during lead time:

500 × 7 = 3,500 kg

Therefore:

Reorder Point = 3,500 + 3,500 = 7,000 kg

This basic logic is also reflected in Oracle’s replenishment documentation, where reorder point is calculated from demand during lead time plus safety stock. Oracle Docs

The exact settings should be reviewed when demand, seasonality, supplier performance or production requirements change.

5. Replace One-Time Stock-Taking With Cycle Counting

Annual physical inventory has an obvious limitation.

The count may be accurate on the day it happens, but inventory keeps moving afterwards.

Cycle counting creates a rolling control process.

A practical approach could be:

• A items: frequent counting
• B items: periodic counting
• C items: less frequent counting

The exact frequency should be based on risk and the factory’s own operating environment.

IBM’s inventory documentation describes ABC analysis as a mechanism that can be used to determine different cycle-count frequencies for different inventory classes. IBM

The important part is what happens after a variance is found.

Do not simply adjust the stock figure.

Find the reason.

6. Control Every Material Issue Against a Production Reference

Every material issue should answer:

What is this material being used for?

The cleanest reference is usually a work order, production order or defined cost centre.

A controlled issue should capture:

• Item
• Quantity
• Unit
• Batch, where relevant
• Production reference
• Receiving line or department
• Date
• Authorisation

This prevents verbal issues from disappearing into the gap between store and production.

The source framework specifically recommends requisition, approval, issue recording, WIP closure and physical-versus-book reconciliation as one continuous control loop. Pasted text

7. Keep WIP Under Control

WIP is one of the easiest inventory categories to overlook.

Material may have left the store but not yet become finished goods.

If the production order is not closed properly, consumed, returned and rejected quantities can remain trapped inside WIP.

That creates two problems:

Operational problem: nobody knows exactly where the material is.

Financial problem: inventory value remains attached to an unfinished job.

For this reason, WIP should be reviewed regularly rather than waiting for month-end.

Inventory Control in Manufacturing: The Daily Transaction Loop

Good inventory management in manufacturing depends on a consistent transaction loop.

A practical flow is:

Requisition → Approval → Issue → Consumption → Return/Reject → WIP Closure → Reconciliation

For example:

Step 1: Requisition

Material is requested against a defined production requirement.

Step 2: Approval

The appropriate authority approves the request.

Step 3: Issue

Store records exactly what was issued.

Step 4: Consumption

Production records what was actually consumed.

Step 5: Return or Reject

Unused or rejected material is returned or recorded properly.

Step 6: WIP Closure

The production order is closed with the appropriate quantities.

Step 7: Reconciliation

Physical stock is compared against book stock according to the cycle-count schedule.

This is much stronger than simply updating a stock register at the end of the day.

Why Book Stock and Physical Stock Stop Matching

Most stock mismatches can be traced back to a relatively small number of process failures.

Unrecorded Issues

Material is physically handed to production but the transaction is entered later.

Unit-of-Measure Differences

Purchasing records kilograms.

The store issues metres.

Someone manually remembers the conversion.

That is a high-risk process.

Uncleared WIP

The job is finished but the production transaction remains open.

Gate-Pass Leakage

Material leaves through:

• Supplier returns
• Scrap
• Samples
• Inter-branch transfers
• Other external movements

without proper documentation.

Delayed Goods Receipt

Material is physically received but remains unposted until another document arrives.

These are not simply “inventory problems.”

They are transaction-control problems. Pasted text

Inventory KPIs Every Factory Should Monitor

A serious manufacturing inventory management process needs measurable KPIs.

1. Inventory Turnover Ratio

Inventory Turnover = Cost of Goods Sold ÷ Average Inventory

Example:

Annual COGS = ৳24 crore
Average inventory = ৳4 crore

Therefore:

Turnover = 6

This means the inventory value turns over approximately six times during the period.

But turnover should not be interpreted alone.

A very low ratio may indicate excess or slow-moving stock.

A very high ratio can also indicate that inventory buffers are too thin and stockout risk is increasing.

2. Days of Inventory

A simplified calculation is:

Days of Inventory = 365 ÷ Inventory Turnover

At turnover of 6:

365 ÷ 6 ≈ 61 days

This converts the turnover number into a form that management can interpret more easily.

3. Stock Accuracy

Stock accuracy measures how closely physical stock matches the system record.

For example:

200 items counted
30 items have a variance

Stock accuracy:

170 ÷ 200 × 100 = 85%

But the objective should not be to simply increase the percentage by making adjustments.

The factory should identify why the 30 items differed.

The provided source makes the same point: stock accuracy should be treated as a KPI, while the cause of the variance is more valuable than simply adjusting the number. Pasted text

4. WIP Ageing

Track how long production material remains in WIP.

An increasing WIP age can indicate:

• Production delay
• Quality issue
• Incomplete job closure
• Material shortage
• Poor production coordination

5. Inventory Ageing

Ageing helps identify stock that has remained unused for longer than expected.

This is particularly important for:

• Imported materials
• Seasonal products
• Customer-specific materials
• Packaging
• Spare parts
• Materials with shelf-life constraints

When Manual Inventory Management Stops Working

Spreadsheets are not automatically bad.

They become problematic when the factory outgrows the process they were designed to support.

A single spreadsheet can work when:

• SKU volume is limited
• One person controls the data
• There are few storage locations
• Material movement is simple

The risk increases when a factory has:

• Multiple godowns
• Multiple production lines
• Multiple shifts
• Large SKU volumes
• Multiple cost centres
• Frequent transfers
• High transaction volume

At that point, different people often maintain different versions of the same inventory balance.

The source material identifies exactly this transition point: spreadsheets become difficult when inventory moves across multiple godowns, shifts and cost centres and the same balance is updated in separate files. Pasted text

Manufacturing Inventory Management Software: What Should It Actually Do?

The purpose of manufacturing inventory management software should not be to replace a spreadsheet with a prettier interface.

It should create a reliable transaction trail.

At minimum, evaluate whether the system can support:

• Item master management
• Multiple warehouses/godowns
• Bin or location visibility
• Raw material tracking
• WIP tracking
• Finished goods
• Unit-of-measure conversion
• Purchase receipts
• Material issues
• Returns
• Inter-location transfers
• Gate-pass control
• Reorder levels
• Safety stock
• Cycle counting
• Stock ageing
• Accounting integration

The key test is simple:

Can one material movement be traced from purchase to receipt, storage, production issue, consumption and final costing without someone manually rebuilding the transaction?

If not, the software may still be useful, but it has not solved the underlying control problem.

Inventory Management Software for a Bangladeshi Factory

Bangladeshi manufacturers also need to consider local accounting and VAT processes when evaluating inventory systems.

The NBR’s current VAT Rules state that registered persons must preserve purchase and sales accounts in VAT-6.1 and VAT-6.2, and the rules specifically provide for preserving VAT-6.1, VAT-6.2 and VAT-6.2.1 in an ERP software system. National Board of Revenue

NBR VAT forms and regulations

That makes the inventory-to-accounting relationship particularly important for businesses that need their purchase, sales and stock records to remain consistent with their VAT records.

The system should therefore be evaluated not only on warehouse functionality but also on how inventory transactions flow into accounting and compliance records.

What to Look for in Inventory Software

Before buying any system, test these questions.

Can it handle multiple godowns?

Stock should be visible by location, not just as one company-wide number.

Can it separate raw material, WIP and finished goods?

These are different inventory stages and should not be treated as one flat stock balance.

Can it convert units?

For example:

Purchase: kg

Store: kg

Production issue: metres

The conversion should be defined in the system rather than depending on someone’s memory.

Can it track material leaving the premises?

Returns, scrap, samples and inter-branch transfers should leave a documented trail.

Does inventory connect with accounting?

Stock value and ledger entries should originate from the same underlying movement.

Can management see useful KPIs?

A factory manager should be able to review:

• Stock accuracy
• Inventory ageing
• Days of inventory
• WIP
• Reorder status
• Slow-moving items

The provided knowledge base identifies these same capabilities as practical evaluation criteria for a Bangladesh manufacturing environment. Pasted text

How Managerium ERP Fits Into Manufacturing Inventory Management

Managerium ERP‘s Inventory & Warehouse functionality is positioned in the provided product knowledge as part of a connected workflow involving store, production, procurement and accounts.

The intended advantage is that a material issue can update the relevant inventory, WIP and costing records within the same structured process instead of requiring separate spreadsheets. Pasted text

For a manufacturer, the more important test is not whether the software has an “Inventory” module.

Test one real material movement:

Purchase Order → Goods Receipt → Store → Production Issue → WIP → Consumption → Costing

If the same transaction remains traceable throughout that flow, the system is addressing the real inventory-control problem.

Explore Managerium ERP

Inventory Management in Bangladesh: Start With the Data

Do not start an inventory digitisation project by buying software.

Start by cleaning the underlying process.

1. Clean the Item Master

Every item should have:

• One code
• One clear description
• One base unit
• Defined conversion rules
• Relevant category
• Appropriate location

2. Fix the Issue Process

Every material movement should have a document.

No verbal issue should become a normal operating process.

3. Close WIP Regularly

Consumed, returned and rejected quantities should be posted against the relevant production order.

4. Establish an A-Class Baseline

Run a physical count of high-value items.

Measure the actual stock accuracy.

5. Set Reorder Parameters

Use real consumption and supplier lead-time data.

6. Then Evaluate Software

Now compare systems against the process you actually need to run.

The provided source follows essentially this sequence: clean the item master, fix issue-to-production, close WIP, establish stock accuracy, set replenishment levels and then evaluate software. Pasted text

Frequently Asked Questions

What is inventory management in manufacturing?

Inventory management in manufacturing is the process of controlling raw materials, WIP, finished goods and MRO items from receipt through storage, issue, consumption and dispatch while keeping physical, operational and financial records aligned. Pasted text

What is the difference between inventory management and inventory control?

Inventory management is the broader discipline covering classification, replenishment, safety stock, policies and measurement.

Inventory control is the daily execution of those policies through requisitions, approvals, issues, WIP closure, transfers and stock counts. Pasted text

What is ABC analysis in inventory management?

ABC analysis classifies inventory according to consumption or investment value so that high-value items receive stronger control and more frequent review. The exact A, B and C percentages should be defined according to the factory’s own inventory profile. IBM

How do you calculate inventory turnover?

Inventory turnover is commonly calculated as:

Cost of Goods Sold ÷ Average Inventory Value

For example, ৳24 crore in annual COGS divided by ৳4 crore average inventory gives a turnover of 6.

What is safety stock?

Safety stock is additional inventory held to reduce the risk of stockouts caused by demand or supply variability. There is no single universal formula; the appropriate method depends on demand variability, lead time and the desired service level. IBM

What is the reorder point?

A basic reorder-point model is:

Demand During Lead Time + Safety Stock

The actual calculation should reflect the factory’s lead time, demand pattern and replenishment policy. Oracle Docs

Why does physical stock differ from system stock?

Common causes include unrecorded issues, delayed receipts, unit-of-measure differences, uncleared WIP, undocumented returns or transfers and incorrect posting. Pasted text

Can Excel handle manufacturing inventory?

Yes, for smaller and simpler operations.

The problem is not Excel itself. The problem begins when multiple locations, users, shifts and transactions create separate versions of inventory data that have to be reconciled manually.

What does manufacturing inventory management software do?

It centralises inventory transactions and can connect purchasing, receiving, storage, production issues, WIP, transfers, replenishment and accounting so that the factory does not have to rebuild the same material movement across separate files. Pasted text

Final Thoughts

Good inventory management in manufacturing is not about keeping the largest possible amount of stock.

It is about having the right material, in the right location, at the right time, with a record that matches reality.

For a factory, the strongest inventory process connects:

Purchase → Receipt → Storage → Issue → Production → WIP → Finished Goods → Dispatch → Costing

When those movements are disconnected, the factory spends time reconciling.

When they are connected, management can spend more time controlling the operation.

The most useful question to ask is therefore not:

“How much inventory do we have?”

It is:

“Can we explain exactly where our inventory is, what it is being used for, and why the number in the system matches the factory floor?”

That is the real measure of effective inventory management.