Manufacturing inventory management means knowing, at any moment, how much raw material, work in process and finished product you hold, where it sits, and when it must be reordered or built. It works best when stock, purchasing, production and invoicing live in one system, so a stock movement is recorded once and every team sees it. DoliCloud, our cloud-hosted open-source ERP and CRM, brings the stock and inventory and manufacturing modules together with sales, invoicing and accounting for this purpose.
TL;DR
- Track four inventory types separately: raw materials, work in process, finished goods and MRO supplies.
- Run a repeatable routine: baseline count, clean item data, set reorder rules, record every movement, review KPIs.
- Choose a replenishment logic (push, pull or just-in-time) per item family, not one logic for the whole plant.
- Software pays off when stock, production, purchasing and accounting share one database and a plan for migration and go-live.
- DoliCloud offers Dolibarr Basic at €14 per month per user, with open-source flexibility and the option to self-host later.
Table of Contents
- What manufacturing inventory management covers
- The four types of manufacturing inventory
- How to manage inventory in manufacturing: a five-step routine
- Push, pull and just-in-time: choosing a replenishment logic
- How much inventory to hold
- KPIs that show whether inventory management is working
- Choosing manufacturing inventory software
- Run your manufacturing inventory in DoliCloud
- Our perspective
- FAQ
- Sources
What manufacturing inventory management covers
A textbook definition from OpenStax says inventory management includes deciding how much inventory of each type to keep on hand, and handling its ordering, receiving, storing and tracking. In a factory, that definition stretches across the whole production lifecycle: components arrive, get stored, are issued to work orders, turn into assemblies and end as finished products that ship to customers.
The core tension is the same everywhere. The same OpenStax chapter frames it as a trade-off: larger inventories help you meet demand, but they tie up money, cost money to store and can become obsolete. Smaller inventories free cash but risk a stopped line or a late delivery. Good inventory management is the discipline of choosing, item by item, where on that scale you want to sit and then proving that your records match reality.
For a small or midsize manufacturer this matters more than for a large one. A single missing component can halt a production run, and a stock record that is off by a few units can lead to promising customers goods you cannot build. Spreadsheets handle this for a while. They break down when several people edit them, when products have bills of materials with many components, or when sales, purchasing and accounting each keep their own version of the numbers.
The four types of manufacturing inventory
The Business Development Bank of Canada describes four main types of inventory in two groups: items in various stages of production (raw material, work in process, finished goods) and goods used in the production process (MRO supplies such as lubricants, office supplies and protective equipment). Each behaves differently, so each needs its own rules.
| Type | What it is | Main risk | What to track |
|---|---|---|---|
| Raw materials | Purchased inputs and components waiting to be used | Stockouts, overbuying, price swings | Quantity, supplier, lead time, location |
| Work in process (WIP) | Items partly built, on the shop floor | Lost visibility, stalled orders | Work order, stage, quantity consumed |
| Finished goods | Completed products ready to sell | Obsolescence, storage cost | Quantity, reserved for orders, location |
| MRO supplies | Consumables that support production but do not enter the product | Unplanned line stops | Minimum level, consumption rate |
Many small manufacturers track only raw materials and finished goods, and treat WIP as a black box. That is where accuracy is usually lost. When a work order consumes components, the system should reduce the raw material count and create the finished product at the same moment, so nothing is double counted or forgotten.
How to manage inventory in manufacturing: a five-step routine
The question readers ask most often is how to manage inventory in manufacturing in practice. This routine works for a ten-person workshop and scales to a larger plant.
1. Establish a baseline count
Start with a full physical count of every location: warehouse, shop floor, quarantine area, supplier-held consignment stock. Count raw materials, WIP, finished goods and MRO separately. The goal is a single trusted starting number. Freeze movements during the count, or the numbers will be stale before you finish. Where it goes wrong: counting in one weekend with untrained helpers, then loading unverified figures into the system. Every later report inherits those errors.
2. Clean and structure item data
Give every item one unique reference (SKU), one unit of measure and one description. Merge duplicates, retire dead items and decide how variants are handled. Then record bills of materials: which components, in what quantity, make each finished product. This is the step teams underestimate. A bill of materials with wrong quantities will produce wrong consumption on every work order, forever.
In DoliCloud, products, stock and manufacturing sit in the same platform as sales and purchasing, so the item you build is the same item you quote and invoice. There is no second catalog to reconcile. Data can also be loaded through import and export tools or the API, which helps when you are moving from spreadsheets.
3. Set reorder rules and stock policies
For each item, decide a minimum level, a reorder quantity and a supplier lead time. Reorder points only work if lead times and consumption data are accurate, a point Business Money makes when it notes that reorder automation is the feature most often bought and least often configured. Start with your fifty most important items, get them right, then extend.
A useful way to prioritize is the 80/20 rule, often applied as ABC analysis: a small share of items typically accounts for most of the value or usage. Count those items most frequently and set tighter policies on them. Low-value, high-volume fasteners can run on a simple two-bin or minimum-level rule.
4. Record every movement as it happens
Accuracy comes from discipline at the moment of the transaction: goods receipt against a purchase order, issue to a work order, completion of finished goods, shipment against a sales order, and adjustments with a reason. Business Money notes that barcode scanning is the feature that most reliably improves accuracy, because it removes manual typing. If a movement is not recorded, it did not happen as far as the system is concerned.
When the same platform handles purchasing, manufacturing, sales and invoicing, a receipt, a work order and a shipment each update stock directly. Nobody re-enters a figure into a second tool, and the accounting side sees the same movements.
5. Review, count and improve
Schedule cycle counts rather than waiting for an annual stocktake: count a few locations or item classes each week, with the highest-value items most often. Investigate each variance to its cause, whether a wrong unit, a missed receipt or scrap that was never booked. Then review the KPIs below monthly and adjust reorder rules. Skipping this governance step is how a clean launch decays into unreliable numbers a few months later.
Push, pull and just-in-time: choosing a replenishment logic
Three approaches dominate manufacturing inventory strategy, and most plants use a mix.
- Push: you produce or buy based on a forecast of demand. It suits stable, predictable products and lets you plan capacity and purchasing in large, economical batches. The risk is forecast error, which leaves you with too much or too little stock.
- Pull: you produce in response to actual consumption or customer orders. Stock levels follow real demand, so inventory stays lean. It needs reliable supplier lead times and clear signals, such as a stock threshold or a confirmed sales order.
- Just-in-time (JIT): materials arrive only when production needs them. It minimizes holding costs but leaves almost no buffer, so it demands dependable suppliers and accurate data.
A practical split for a small manufacturer: use pull or make-to-order for custom and low-volume products, push with a forecast for steady best sellers, and a minimum-level rule for commodity components and MRO supplies. Whatever you choose, the logic only works if the stock figure in your system is true at all times. That is why record accuracy comes before strategy.
How much inventory to hold
Sizing stock is a judgment about variability. Kien Leong, writing on Production Scheduling, explains that the coefficient of variation (standard deviation divided by average) measures demand variability, with high-variability items given roughly 60 to 90 days of inventory cover and low-variability items 15 to 30 days.
The same article adds an important refinement: predictable swings such as seasons, product cycles, campaigns and promotions should be handled in the forecast, not buffered with extra stock. Inventory is there for the moments when the forecast is wrong. In practice that means:
- Separate predictable demand patterns and plan for them in purchasing and production schedules.
- Size the safety buffer on what remains unpredictable.
- Revisit buffers when lead times or demand patterns change.
A worked example: a workshop that builds cabinets uses hinges steadily all year and buys them from a supplier with a two-week lead time. Their hinge buffer can be small and reviewed quarterly. The same workshop sells more of one cabinet model each autumn. Rather than carrying extra stock all year, they raise production of that model before the season, based on last year's sales. The buffer stays modest, and the forecast carries the seasonal load.
KPIs that show whether inventory management is working
Choose a handful of measures and review them on a fixed rhythm. These are standard definitions, and what counts as good depends on your industry and product mix, so track your own trend first.
| KPI | How it is calculated | What it tells you |
|---|---|---|
| Inventory turnover | Cost of goods sold divided by average inventory value | How quickly stock converts into sales |
| Days of inventory on hand | Average inventory divided by cost of goods sold, times days in the period | How long stock sits before use or sale |
| Inventory accuracy | Items where system count matches physical count, divided by items counted | How far you can trust your records |
| Stockout rate | Orders or work orders delayed by missing items, divided by total | Whether you hold too little |
| Carrying cost | Storage, insurance, handling and capital cost, as a share of inventory value | What holding stock really costs |
| Obsolete or slow-moving stock | Value of items with no movement in a set period | Where cash is trapped |
A short note on terms that readers often ask about: a SKU is a stock keeping unit, the unique code for each distinct item, and a KPI is a key performance indicator, a measure you track against a target. Start with accuracy and stockouts. If the records are wrong, every other ratio is wrong as well.
Choosing manufacturing inventory software
Spreadsheets and standalone stock apps hit limits when you need bills of materials, work orders, purchasing and accounting to agree. Business Money's 2026 buyer guidance is a useful checklist here: real-time visibility is the baseline feature, barcode scanning most reliably improves accuracy, traceability matters if you are regulated or might need a recall, and reorder automation only works with accurate lead times and consumption data.
Use these criteria when comparing systems:
- One database for stock, manufacturing, purchasing, sales, invoicing and accounting, so that a movement is recorded once.
- Fast adoption. A tool your team can use without lengthy training gets used, and unused software produces no accuracy.
- Connectivity. An API, import and export, and the ability to customize the platform to your process.
- Control of your data, including the freedom to move your instance to your own hosting later.
- A realistic implementation plan. Business Money advises expecting weeks rather than days for anything beyond the simplest setup, because data migration, integration, testing and training all take time, and recommends timing go-live around your business and away from your busiest season.
That last point deserves emphasis. Most failed projects fail on data and process, not on software. Clean item data and verified bills of materials before go-live, train the people who will record movements daily, and start with a pilot area before extending to the whole plant.
Run your manufacturing inventory in DoliCloud
DoliCloud hosts the open-source Dolibarr ERP and CRM in the cloud, with modules for stock and inventory, manufacturing, sales, invoicing, accounting, purchasing-related business functions, project management and POS on one platform. It is designed to be usable immediately, without extensive training, and you keep control of your data and can switch to self-hosting at any time. Integration is available through API, import and export, and customization.
The Dolibarr Basic plan costs €14 per month per user, and Dolibarr Premium is also available; see the DoliCloud pricing page for both. If you are replacing several separate tools, the all-in-one software that replaces your business applications shows what can move into a single platform. You can also start from the DoliCloud home page and try the platform before subscribing.
Our perspective
Most inventory problems we hear about in manufacturing are not stock problems. They are fragmentation problems: the stock lives in one file, the work orders in another, the invoices in a third, and nobody trusts any of them.
That is why we built DoliCloud around a single platform. Stock, manufacturing, sales, invoicing and accounting share the same data, so a receipt or a work order is entered once and visible everywhere. We design it so that a team can start working the same day, without a training program standing between them and their first accurate stock count.
We also believe you should own your information. Dolibarr is open source, you keep control of your data, and you can move to self-hosting whenever you decide to. Our approach to eco-responsible software means doing more with fewer resources, which is a fitting principle for a discipline that is itself about not wasting materials.
Start small: pick your most important items, make the records right, and extend from there. A system that people actually use every day beats a perfect design nobody follows.
the author
FAQ
How do you manage inventory in manufacturing?
Start with a verified physical count and clean item data, including bills of materials. Then set reorder rules, record every receipt, issue and completion as it happens, and run regular cycle counts. Review turnover, accuracy and stockouts monthly to refine the rules.
What is the 80/20 rule for inventory?
It is the observation that a small share of items, often around 20 percent, accounts for most of the value or usage, about 80 percent. Manufacturers use it for ABC analysis: count and control the high-value group more often and tightly, and manage the long tail with simple minimum-level rules.
What are the five steps of inventory management?
A workable sequence is: count a baseline, clean the item data and bills of materials, set reorder rules, record every movement, and review KPIs with regular cycle counts. Each step builds on the previous one, so skipping the early ones undermines the rest.
What is the difference between raw materials, WIP and finished goods?
Raw materials are purchased inputs not yet used. Work in process is partly built product on the shop floor. Finished goods are completed products ready to sell. MRO supplies, such as lubricants and protective equipment, support production without becoming part of the product.
How long does it take to implement manufacturing inventory software?
Plan for weeks rather than days beyond the simplest setup, since data migration, integration, testing and training all take time. Choose a go-live date outside your busiest season and verify item data and bills of materials beforehand.