Manufacturing inventory management means knowing, at any moment, how much raw material, work in process and finished product you hold, where it sits, and what production will consume next. The most reliable way to do it is to run stock, bills of materials and production orders in one system, so every movement updates the same record. That is what we built DoliCloud for: hosted Dolibarr ERP and CRM, ready to use without training, with stock and manufacturing modules included. 🚀
Below you will find the concepts, the method, the numbers to watch, and a step-by-step setup in Dolibarr.
TL;DR
- Track four stock types: raw materials, work in process, finished goods and MRO supplies.
- Inventory is a cost trade-off. Holding too much ties up cash, holding too little stops production.
- Use ABC (80/20) analysis to decide which items deserve the tightest control.
- Link bills of materials, manufacturing orders and stock movements so stock updates itself.
- Dolibarr on DoliCloud starts at €14 per month per user and covers stock, BOMs and manufacturing orders.
Table of Contents
- What manufacturing inventory management covers
- The four types of manufacturing inventory
- How to manage inventory in manufacturing, step by step
- Which method should you use? ABC and the 80/20 rule
- KPIs worth tracking
- What manufacturing inventory software should do
- Why a cloud-hosted Dolibarr suits small manufacturers
- Start with Dolibarr on DoliCloud
- Common mistakes to avoid
- FAQ
- Sources
What manufacturing inventory management covers
A retailer buys goods and resells them. A manufacturer buys inputs, transforms them and sells something different. That adds layers: you must know what is on the shelf, what is half-built on the shop floor, and what is waiting to ship.
The goal is balance. An operations textbook from OpenStax describes inventory decisions as a trade-off between holding costs, ordering costs and the cost of running short. Excess stock ties up money, takes space and can become obsolete. Too little stock stops the line. So the aim is not the smallest inventory. It is the cheapest combination of all three costs.
Good control pays off in ways you can feel quickly:
- Fewer line stoppages caused by a missing component.
- Less cash parked in boxes nobody touches.
- Accurate costs, because you know what each production run consumed.
- Faster answers to customers asking when an order ships.
The four types of manufacturing inventory
The Business Development Bank of Canada lists four main inventory types. Each one needs a slightly different handling rule.
| Type | What it is | Typical control |
|---|---|---|
| Raw materials | Items that will become part of the final product | Reorder levels, supplier lead times |
| Work in process (WIP) | Partially completed items still in production | Tied to open manufacturing orders |
| Finished goods | Completed items not yet sold | Stock by warehouse, shipment tracking |
| MRO supplies | Goods that support operations, such as tools and consumables | Simple minimum quantities |
Most small manufacturers track raw materials and finished goods well and lose sight of WIP. Once a component leaves the shelf for a job, it effectively disappears from the records. The fix is to make production itself the thing that moves stock, not a person updating a spreadsheet afterward.
How to manage inventory in manufacturing, step by step
Here is the routine we recommend, and how each step maps to Dolibarr. The module descriptions come from the Dolibarr manufacturing and MRP page and the stock management page.
1. Build a clean product list
Every raw material, component and finished product needs one reference, one unit of measure and one description. Duplicates are the quiet killer of inventory accuracy: the same screw under two names means two partial counts and a false shortage.
This is where the SKU comes in. A SKU is simply the unique code for a stock item. Keep the scheme short and consistent, and give variants (size, color, finish) their own codes if they are stocked separately.
2. Define your bills of materials
A bill of materials (BOM) lists what it takes to make one unit: the components, the quantities and the efficiency. Dolibarr lets you create BOMs that define how raw products or services are consumed to produce a manufactured product, including quantity to consume, efficiency and stock impact.
A BOM is the bridge between sales and purchasing. Once it exists, a customer order for 50 units translates directly into a known requirement for every component.
3. Set up warehouses and locations
Even a single-room workshop benefits from naming its storage areas. Dolibarr lets you organize warehouses and locations, then track stock by product reference, warehouse, date and, when needed, lot or serial number. It also supports valuation by weighted average price or standard calculation, so your stock value reflects a method you choose.
4. Let documents move the stock
Manual stock entries drift. Dolibarr lets you record movements manually or configure the application to increase or decrease stock automatically, for example on invoice, order or shipment validation. Pick the trigger that matches how your business really works, and then stick to it.
5. Plan production with manufacturing orders
A manufacturing order reuses a predefined BOM. You can produce it in one step or several. When it is produced, stock of the finished product goes up and stock of the consumed components goes down automatically, and the history shows each change.
The application also calculates virtual stock in real time, taking open manufacturing orders into account. That is the figure planners need: not just what is on the shelf today, but what will be there once committed work is done.
6. Replenish from real and virtual stock
Virtual stock is the stock position once all customer and supplier orders are shipped or received. Comparing it with real stock tells you what to buy now. Dolibarr uses both to make replenishment possible in a few clicks, so purchasing is driven by data rather than by walking the aisles.
7. Trace by lot or serial number when it matters
If you make products that need traceability, activate lot or serial management. Products defined by lots require a lot number to be manufactured, and you can retrieve the stock movements for a particular lot from production through to customer shipment.
8. Count, compare and adjust
No system replaces a physical count. Count regularly, record differences as stock movements, and look for the cause. Count your A items most often (more on that next).
Which method should you use? ABC and the 80/20 rule
People often ask what the 80/20 rule means for inventory. It is Pareto's principle: roughly 20% of inputs are responsible for 80% of results. An academic paper on inventory management in manufacturing organizations describes ABC analysis as splitting items into three groups based on annual cost volume usage.
The Michigan Manufacturing Association's news site gives the typical split: according to MMA News, Class A items account for up to 80 percent of revenue, Class B about 15 percent and Class C about 5 percent.
In practice:
- Class A: few items, big money. Count often, set tight reorder rules, review supplier performance.
- Class B: moderate attention, periodic review.
- Class C: many items, little value. Keep simple minimums and order in bulk to save effort.
To run it, export your item list with annual usage and unit cost, multiply, sort from highest to lowest, and draw the lines at roughly 80% and 95% of cumulative value. Dolibarr has an Export module, so you can pull this data out and work on it in a spreadsheet.
Pull, push and just-in-time
Three planning philosophies come up constantly. Push builds to a forecast. Pull builds in response to actual demand. Just-in-time schedules materials to arrive when production needs them. Most small manufacturers blend them: push for stable, fast-moving components, pull for custom or low-volume work. Whichever you choose, you need trustworthy stock and order data, because all three fail when the numbers are wrong.
KPIs worth tracking
Do not track twenty metrics. Start with a few that tell you whether inventory is serving the business.
- Stock coverage: how many days of demand your current stock can cover. A professional analysis from AK argues that stock coverage, item-level delivery readiness and holding costs say more about supply chain health than forecast accuracy alone.
- Holding cost: the same source cites industry-standard stockholding cost rates of 19 to 30 percent of stock value per year. At that rate, €100,000 of idle stock can cost €19,000 to €30,000 annually.
- Inventory accuracy: the share of items where the system count matches the physical count.
- Stockout rate: how often a needed item is not available, tracked separately for Class A items.
- Slow-moving and obsolete stock: items with no movement for a set period. Pick your own thresholds, then review them every quarter.
A worked example: a workshop holds €40,000 of components, and 20% of that value has not moved in a year. That is €8,000 of cash sitting still, and at the 19 to 30 percent range above, roughly €1,500 to €2,400 in yearly carrying cost on those items alone. Seeing that number is often what motivates the first clean-up.
What manufacturing inventory software should do
Spreadsheets work until the first rush order. Software starts to earn its place when you have multi-level products, several people touching stock, or customers who ask for traceability. Look for these capabilities:
- Bills of materials that feed manufacturing orders.
- Automatic stock movements when production, shipments or invoices are validated.
- Real and virtual stock side by side.
- Warehouses and locations.
- Lot and serial tracking.
- Links to purchasing, sales and accounting, so a stock movement reaches the books without retyping.
- Import and export, so your data is never trapped.
Dolibarr covers these in a single platform, alongside invoicing, accounting, projects and CRM. That matters because inventory problems are rarely only inventory problems: they start in a quote that promised a date or a purchase order placed late.
Extending Dolibarr with add-ons
If you need something beyond the standard modules, the Dolistore marketplace lists third-party add-ons for Dolibarr. Browse it for modules that complement stock and production workflows before you consider custom development.
Why a cloud-hosted Dolibarr suits small manufacturers
Most small manufacturers do not have an IT department. They have a production manager who also does purchasing. The best system for them is one that is up and running quickly and that people use without a training course.
Dolibarr is open source, so you are not locked in. You can customize it to fit your process, and with DoliCloud you can move to self-hosting at any time if your needs change. Your data stays under your control, and we design the platform to be resource-efficient, which is part of our eco-responsible approach.
For a deeper walk-through, read our practical guide to manufacturing inventory management. If you want to see how many separate tools one platform can replace, see the all-in-one software to replace your business applications.
Start with Dolibarr on DoliCloud
Dolibarr Basic costs €14 per month per user. Dolibarr Premium runs from €45 to €105 per month. Both are listed on our pricing page, where you can pick the plan that matches your team. You can also learn how Dolibarr works in the cloud before you start.
A sensible first project: load your products, create the BOM for your best-selling item, set up one warehouse and run a single manufacturing order from start to finish. Within a day you will see stock rise and fall on its own.
Common mistakes to avoid
- Skipping the BOM. Without it, consumption is guesswork and costs are wrong.
- Counting everything equally. Use ABC so your effort follows the money.
- Updating stock after the fact. Let validated documents move stock instead.
- Ignoring WIP. Tie it to open manufacturing orders so it stays visible.
- Ordering from real stock only. Virtual stock shows commitments that real stock hides.
- Chasing perfect forecasts. Good coverage and clean data beat a clever forecast on bad numbers.
FAQ
How do you manage inventory in manufacturing?
Start with a clean product list, define a BOM for each manufactured item, and organize warehouses. Then let orders, shipments and manufacturing orders move stock automatically. Count regularly, focus on your highest-value items, and replenish from virtual stock so committed work is already counted.
What is the 80/20 rule for inventory?
It applies Pareto's principle to stock: a small share of items, around 20%, usually drives most of the value, around 80%. ABC analysis turns this into three classes so you can give Class A items the most frequent counts and the tightest reorder rules.
What is SKU and KPI?
A SKU is the unique code that identifies a stock item and its variant. A KPI is a key performance indicator, a number such as inventory accuracy, stockout rate or stock coverage that shows whether your process is working.
What are the 5 steps of inventory management?
A simple five-step version is: receive and record goods, store them in defined locations, move them into production against a BOM, ship finished goods, and count and review. Dolibarr supports each step through its stock, manufacturing and order modules.
Can Dolibarr handle lot and serial tracking?
Yes. You can activate lot and serial management, require a lot number for products defined by lots, and trace stock movements for a lot from production to customer shipment.
Sources
- OpenStax, Pulling It Together: Resource Planning
- Business Development Bank of Canada, What is inventory
- Inventory Management In Manufacturing Organizations
- MMA News, How to Leverage Inventory Cost Management
- AK, Forecasting accuracy: why it is overrated
- Dolibarr, Manufacturing and MRP software
- Dolibarr, Stocks and warehouses management
- Dolistore