Have you ever encountered difficulties locating raw materials? Did you experience delays in receiving raw materials as a result of management?
COVID has demonstrated to us how even seemingly minor supply chain issues can spiral out of control and have a detrimental impact on businesses. There are some techniques you can employ to enhance the sourcing of your raw materials and better manage your supply chain.
Learn 5 key techniques for optimising your inventory to improve your raw material management in this blog post.
What is Inventory Management for Raw Materials?
The total cost of a manufacturer's components, sub-assemblies, and supplies on hand but not in use constitutes the inventory of raw materials.
There are two types of raw materials used to create a finished good: direct materials and indirect materials.
Inventory management for raw materials is the process of tracking and managing the inventory levels of the materials that are used to manufacture products. Effective inventory management can help businesses optimise their raw material supply chain, reduce costs, and improve their overall operations.
Also Read: What Are Raw Materials in Manufacturing? Meaning, Types And Importance | Khatabook
How Can Buyers Manage Stocks and Maintain Production Efficiency?
Buying, making, or producing materials is a crucial part of many raw material businesses. Ineffective inventory management can cause some businesses to place excessive orders for supplies and products, forcing them to mark down their stock. Many companies also don't plan adequately, which could leave them with insufficient stock to pay client invoices.
The management of raw materials, including direct materials and indirect materials, is not too dissimilar. Nevertheless, depending on the type of material used, more thorough planning and preparation might be necessary. The majority of the time, direct materials are those that are incorporated into finished goods, such as wood for furniture. For those who work in raw material management, some of the products' perishability can be a problem. This is especially common in industries that are directly related to food, like supermarkets, coffee shops, and restaurants.
Manage your stocks by following these tips.
1. Determine the Raw Materials Stock
Raw materials inventory refers to the total cost of all materials that go into making a product but aren't yet being used in the production of work-in-progress or finished goods. Calculating your inventory should be your first step in material management. To calculate the raw material inventory, add the cost of direct materials and the manufacturing overhead to the value of your inventory.
2. Track Raw Materials Carefully
Record keeping is a vital part of raw material management because it can help you avoid problems like overstocking and understocking. There are various online tracking platforms that can help raw material businesses stay on top of this.
This can not only help with internal management but also allow you to graph price changes of imported and exported goods over time. This could help you better manage your company's finances.
Also Read: Understand About the Raw Materials for Jackets and Coats
3. 80/20 Rule
When it comes to running a raw material business, many experts recommend following the 80/20 rule. In layman's terms, this is the idea that 80% of results are obtained from 20% of the work. When it comes to raw materials management, this may imply attempting to earn 80% of your profits from 20% of your stock.
This gives you a specific inventory amount to aim for. You can then prioritise inventory management around 20% of your products which may earn you 80% of your profits.
4. Examine Your Vendors
Awareness of your suppliers' workflow is critical to supply chain management. If one of your suppliers is frequently late in importing raw materials, this could have serious consequences for your business.
When your main supply source is having trouble, distributors can help you locate additional resources. They typically engage in global buying and selling, which enables them to stay abreast of fashion and offer you the most affordable option for your current supply chain requirements. Distributors often have access to a wide range of resources that may not be available to businesses operating on their own. These resources can include specialised expertise, advanced technology, and extensive networks that can help businesses streamline their operations and achieve their goals more efficiently. Therefore, they might be able to find supply routes or solutions that will get you through a rough patch. If you regularly collaborate with a distributor, you might discover that they can support the development of your supply network and your stockpile. This will enable you to prepare for potential shortages in the future.
5. Demand Forecasting
Planning for the future is crucial when managing the inventory of raw materials, especially when working with perishables. But, unless you have a crystal ball, doing so may necessitate demand planning. Demand forecasting is the process by which a business examines current trends as well as market predictions to determine how much demand there will be for its products. By only producing what you might sell, you can not only maximise your profit margins but also optimise your inventory levels.
This manual describes how the management of your raw material stock changes as your company expands and is applicable to all manufacturing sectors that deal with raw materials. You will have a thorough understanding of the definition of raw materials, how to handle them, and how to calculate raw material consumption by the end of this article. Without further ado, here's everything you should know about managing your raw material inventory to grow your company.
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium enterprises (MSMEs), business tips, income tax, GST, salary, and accounting.