Key Differences When Managing Inventory in Retail vs. the Manufacturing Industry

    Whether you are active in retail or manufacturing, inventory management should be an essential part of your business. Especially in recent years, when having an online store and e-commerce component became so common, managing your inventory has become more complex than ever before.

    And if you have already familiarised yourself with the best inventory management strategies, and have adopted a software product to use for this goal, you might want to find out more about what the differences are when you are managing inventory for a manufacturing business, as opposed to retail.

    You need to manage raw materials and production processes

    In standard retail, this is not a concern you’ll have. You are handling finished products acquired from different providers and subsequently selling them further to consumers. And this is complex enough, but for manufacturers, raw materials and production processes need to be handled as well.

     

    When manufacturing your own products, you have to keep an eye on the materials that your production processes require to remain up and running. And while raw materials are usually much cheaper than finished goods, you cannot afford to run out of any, because of the threat of downtime. Missing out on even one material can disrupt your production line, making you incur extra costs and your staff unproductive.

    You need to manage multiple inventory types

    This comes as a continuation of the previous item. Especially if you are also running your own store, you are not only managing raw materials and finished goods, but also need to make sure that they are timely shipped to your customers. Even more, there is MRO (maintenance, repairs, and operations) inventory that you need to keep a close eye on.

     

    This is partly a concern for retail businesses as well, but is generally not treated as an essential component. If your tools and equipment need repair but you are missing the needed parts, your entire production line could come to a halt. And then, like a domino effect, your entire inventory is affected and your clients are left unhappy.

    You are more directly impacted by supply chain disruptions

    Particularly in recent years, supply chain disruptions have caused major issues to retailers and manufacturers alike. From the pandemic, to ongoing armed conflicts, or extreme weather events and increasing energy and fuel costs, some essential materials and goods have become increasingly harder to come by. This means that many products that clients need may become harder to procure or prohibitively priced. These supply shortages have impacted manufacturers and retailers alike, but if your business is in manufacturing it is likely more directly affected. When you cannot manufacture your products, your staff becomes redundant and your clients unhappy because they don’t get the products they need.

    You need to focus on both inventory management and control

    Inventory control can be defined as a branch of inventory management in general. While inventory management includes the strategies applied to pricing, selling, or optimising inventory, inventory control refers strictly to knowing what products you need, have, and where they are stored.

    There are many strategies used for inventory control, including identifying deadstock, creating your safety stock, or optimising your storage logistics. Of course, these strategies are important for both retailers and manufacturers, but can become more crucial when you need to handle raw goods, longer storage times, finished products, and their shipping.

    You might need to interact with more stakeholders

    This is a direct consequence of the above items. As you need to handle more inventory types and use multiple inventory management strategies, it is likely that you will interact with more stakeholders than just your direct providers and clients. If you are using many raw materials that are sourced from different places, then your business partners increase exponentially. Unlike in retail, where one product comes from a particular provider, when you are manufacturing or further even, also selling your products, there will be more interaction points.

     

    These are some differences we spotted in terms of inventory management for retail and manufacturing business. Of course, each comes with a unique set of challenges and opportunities and one is not easier than the other, but you do need to keep in mind some of these differences so you can optimise your strategies and processes.

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