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Kanban in manufacturing: 9 major benefits [+examples]

Kanban in manufacturing is an inventory control process used in just in time inventory management. In Kanban, manufacturing teams use visual cues, called Kanban cards, to signal specific actions that keep processes running efficiently.

Think of Kanban in manufacturing like loading a dishwasher. When done correctly, everything fits perfectly and gets cleaned efficiently. And just as you wouldn’t overload a dishwasher or mix up different types of dishes, Kanban prioritizes specific manufacturing tasks so that you can complete them efficiently and effectively.

Originating as a manufacturing process, Kanban now broadly ensures that teams can work together seamlessly towards a common goal. Whether optimizing warehouse management systems or creating centralized supply chain management, Kanban can be instrumental in removing inefficiencies from workflows.

But what exactly is Kanban, and how can you integrate it? In this post, we’ll explore what Kanban is, the benefits of implementing it into your workflows, and a few real-world examples of companies that have leveraged Kanban’s capabilities to create seamless processes — just like a perfectly loaded dishwasher.

What is Kanban?

Kanban describes a method of inventory control companies use to make smarter reordering decisions and track production more easily. The term “Kanban” came into existence almost 50 years ago when Taiichi Ohno, an engineer at Toyota Automotive, developed the first Kanban system to improve manufacturing efficiency.

The four core principles of Kanban are:

  • Visualize work
  • Limit work-in-progress
  • Focus on flow
  • Improve continuously

The idea of Kanban was taken from an unlikely inspiration: a supermarket. Toyota noticed that supermarkets restocked an item according to the store’s supply and not the vendor’s. Supermarkets replenished items only when they were nearly out of stock.

The grocers’ ‘just in time’ inventory method and delivery process sparked an interest in Toyota to adopt a similar approach where inventory matched demand.

How does Kanban work in manufacturing?

Kanban systems in manufacturing communicate the need to replenish stocks or produce an item. When it comes to producing items, Kanban breaks down the process into defined steps to ensure production is done efficiently and without error. The process is defined by the steps below:

 

  • Outlining: Determining the necessary steps in the manufacturing process
  • Developing a pull system: Creating a system where products only get produced when there is customer demand
  • Limit work in progress (WIP) goods: Restricting the number of units that you can produce at a given time to limit manufacturing waste 
  • Monitor performance: Track the success of the production system
  • Continuously improve: Use your success metrics to continuously enhance the production process
A visualization of how the Kanban process works for manufacturing companies.

Types of Kanban systems

Kanban typically breaks down into six main types: production, withdrawal, supplier, emergency, through, and express. Different types of Kanbans serve a specific purpose and help solve various problems in inventory management, like ensuring tasks are completed efficiently and materials aren’t going to waste.

Production Kanban

Production Kanban is the simplest and most widely used method of Kanban — and it applies to almost every industry. This method creates production cards, which illustrate the raw materials and processes necessary to create a product.

Withdrawal Kanban

Withdrawal Kanban ensures that time and labor are used as efficiently as possible. In this method, floor staff use withdrawal cards to signify that a process or task is finished and they are ready for the next one. The card additionally signals that their component is complete and ready to move to the next production stage.

Supplier Kanban

For industries that rely heavily on supplier collaboration, supplier cards allow suppliers greater visibility into the production process and to be part of the larger Kanban system. This streamlines the process by reducing the time it typically takes to make a supplier request.

Emergency Kanban

While Kanban strives to prepare for the unexpected, emergencies are inevitable in an organization. Emergency Kanban cards are reserved for situations where a defective part needs to be quickly replaced to restore the system to its natural flow.

Through Kanban

You will use Through Kanban cards, a combination of production and withdrawal cards, when two different production teams work in tandem in the same setting. Instead of using both a production and withdrawal card to signal a task is complete and another is ready to begin, a through card accomplishes both.

Express Kanban

Express Kanban serves the sole purpose of alerting team members when manufacturers are short of specific items or materials. Using express Kanban ensures manufacturers never experience slowdowns due to raw material—or other item—shortages.

9 major benefits of Kanban in manufacturing

Implementing Kanban into your inventory management techniques can benefit your internal processes and your relationship with customers and suppliers in major ways. Here are nine major upsides to adopting Kanban.

A list of the major benefits of using Kanban for manufacturing alongside a woman working on a production line.

1. Improved quality and accuracy

By outlining processes before they begin, companies can foresee and predict potential roadblocks during production. By identifying these ahead of time, manufacturers can adequately navigate around them to reduce delays and improve overall quality.

2. Enhanced efficiency

A core principle of Kanban is reducing manufacturing waste, which can mean eliminating processes or steps that have no value to the customer. By taking away unnecessary steps, manufacturers can work more efficiently and produce products quickly.

3. Lower lead times

When you cut out the wasteful steps in a process, you can guarantee lower lead times. Kanban allows businesses to get products to customers faster and can therefore lower costs. By examining each step of the production process under a microscope, companies can reduce carrying costs, package quicker, and move products more efficiently.

4. Stronger customer service

Kanban relies on continuous feedback and improvement, which emphasizes customer service and customer feedback. Additionally, Kanban allows you to be on top of processes — meaning you’re always engaging with customers and meeting their needs quickly.

5. Greater visibility

Visibility and transparency are at the heart of the Kanban process, and the system seeks to allow stakeholders to visualize the flow of products and information easily. By adopting a process all team members can easily see how to prioritize tasks — making for more efficient workflows.

6. Optimized inventory levels

Since inventory is not replenished until needed, Kanban reduces the need for additional storage space and prevents cash flow from being tied up in excessive inventory. Kanban enables maintaining accurate inventory levels in real time.

7. Limited overproduction

Kanban is a demand-pull system, meaning it pulls work from the previous stage according to the designated need for production. Kanban adheres to just in time inventory principles, eliminating the need to keep too much safety stock to deal with unexpected delays during the production line.

8. Flexible production

A Kanban inventory control system focuses on current demands to set production capacity appropriately. If there is a sudden surge in demand for a product, Kanban ensures the minimum possibility of excess inventory, giving the production process flexibility in responding to changing demands.

Kanban also provides adaptability to the production line as you can easily switch it to different products depending on the demand.

9. Reduced obsolete inventory

Even if a product or component design needs upgrades, it is incorporated into the final product as soon as possible. No component goes wasted or becomes obsolete inventory.

Additionally, since you’re operating under the just in time inventory technique, you’re less likely to be stuck with excess inventory if demand shifts unexpectedly.

3 challenges to implementing Kanban

In manufacturing, Kanban can be extremely effective in enhancing efficiency and improving processes, but fully adopting it into your inventory management process can be easier said than done. Here’s why:

1. Imbalance with inventory management

Achieving inventory flow involves your processes being balanced, meaning that if you adopt Kanban, it needs to work alongside your inventory management technique. Since Kanban prioritizes limiting waste, it works well with just in time inventory management.

Depending on your inventory management technique, which likely depends on your industry, you’ll need to carefully evaluate if Kanban is feasible for your current inventory processes.

Request a demo of Cin7 to see how Connected Inventory Performance can improve and automate your inventory processes. 

2. Resistance to change

Kanban can be extremely rewarding and significantly benefit an organization, but it can be difficult to encourage team members to adopt Kanban.

When you adopt Kanban, you may be up-ending an established process, so don’t be surprised if you experience resistance from team members.

3. Fluctuating demand

Kanban works well to ensure it accounts for fluctuations in demand, but it can be difficult to implement if demand is regularly shifting. While the system can successfully combat unexpected periods of demand, you may experience challenges implementing it during periods of demand fluctuation.

It can also be difficult to maintain low WIP limits when demand is regularly shifting.

Kanban vs. Scrum

While Kanban and Scrum both work to enhance efficiency and create better products, they have slightly different purposes in workflows.

  • Kanban strives to help manufacturers better visualize processes and improve flow.
  • Scrum provides an iterative method for accomplishing processes more efficiently.

Scrum is an agile method that breaks up work into sprints, or dedicated periods for accomplishing tasks. Kanban and Scrum work well in tandem since they want to achieve the same goal but do so differently. The table below breaks down the major differences between Kanban and Scrum.

A chart detailing the major differences between

Kanban Examples in the real world

Kanban is popular today because it’s a proven system for success. Let’s explore some case studies of companies that leveraged Kanban to see major growth.

Toyota

Toyota adopted Kanban to their existing system to more easily visualize steps in the engineering process. The aim behind Toyota’s adoption of Kanban was to align their inventory levels with actual demand.

In Toyota’s system, a Kanban card was passed every time a bin of materials was emptied. This action signified to the warehouse how much stock needed to be replenished. As a result, Toyota was able to limit excess inventory in the production line and enable smoother communication between teams.

Nike

Nike’s adoption of Kanban stemmed from bad PR after word of poor working conditions in their factories spread. To improve conditions at their factories and mend relationships between staff and management, Nike implemented the pull strategy, which allowed employees to:

  • Work less overtime
  • Reduce late orders
  • Be better prepared for changing demand

Through Kanban, Nike was able to maintain their focus on innovation while simultaneously improving the quality of their working environment.

Importance of Kanban for small businesses

While the companies above are mammoths now, they were up-and-comers when they initiated the Kanban method. Growth-focused small businesses can see major benefits from Kanban, as the method can eliminate setbacks that tend to stunt growth — like losing capital to excess inventory and failing to optimize internal processes.

Small businesses are always looking for continuous improvement, regardless of whether they’ve implemented Kanban. Visualizing your workflows early on is the best way to pinpoint inefficiencies and find solutions.

Frequently asked questions

Still wondering what Kanban can do for you and your organization? Look no further. Here are a few of the most common questions and answers about Kanban in manufacturing.

What are the 4 principles of Kanban?

The four core principles of Kanban are:

  • Visualize the workflow
  • Limit WIP
  • Manage flow
  • Continuously improve

Together, these principles strive to achieve Kanban’s goal of increasing efficiency and reducing waste.

What is Kanban for raw materials?

When it comes to raw materials, Kanban ensures that the company only has the necessary amount of raw materials on hand at a given time — limiting the potential for waste.

In inventory management, this is best described as just in time inventory, or the idea that a company should only produce the necessary inventory to meet current customer demand.

What is Kanban in Agile?

Kanban is a method that exists within the Agile methodology. The Agile methodology broadly refers to a systematic approach to creating efficient processes prioritizing continuous improvement.

What are the 5 elements of Kanban?

David Anderson, a pioneer of the Kanban method, described the five elements of Kanban as:

  • Visual signals
  • Columns
  • WIP limits
  • A commitment point
  • A delivery point

These five elements are all components of Kanban boards and work together to ensure processes go smoothly.

Connecting inventory with Kanban

If you want cleaner dishes, you may have to reevaluate the way you load your dishwasher. Creating the most efficient internal systems is a bonafide path to success when it comes to growing a business — and it starts with how you manage inventory. Kanban works hand in hand with your inventory management technique, as the two processes can limit wasted time and wasted stock.

By automating your processes with comprehensive inventory management software, you’ll gain insights into whether Kanban makes sense for your business and where you can improve your inventory efficiency.

Start a free trial of Cin7 to streamline your processes today.  

What Is Cost of Goods Sold (COGS) + How to Calculate It

If you’ve been hanging around the accounting department, chances are you’ve heard the term cost of goods sold (COGS) thrown around a few times. But while COGS is  important, it’s also a concept people tend to misunderstand.

Knowing what COGS is will help you better understand all of the costs associated with your product and your profit margins. In this article, we’ll go over this common accounting term, including what it is, and how to calculate yours.

What is the cost of goods sold?

Cost of Goods Sold (COGS) refers to the cost of producing the goods that have been sold by a business. COGS is classified as an expense account on your income statement, representing the amount you have to recover from each sale to break even before bringing in profits.

COGS is only recognized upon the sale of inventory and is reported in the financial period in which those sales occur. For example, let’s say you have a clothing business with $5,000 worth of inventory. If you sell $2,500 worth of that inventory in the second quarter, you would record $2,500 in COGS. The rest would continue to stay in your inventory account.

As you can see in the example, the cost of inventory sold and COGS match. That’s because the value of your inventory stems from the direct costs of the items that make up that inventory, whether you’ve bought the materials to manufacture the items or purchased them for resale.

It also includes additional charges directly related to preparing products ready for sale, like packaging and delivery charges.

So, if we go back to the clothing store example, the $5,000 inventory number doesn’t come from thin air — the total includes the cost of the fabric, labor, packaging materials used, and delivery fees.

However, note that COGS excludes indirect expenses such as sales and marketing, so the costs associated with trying to sell t-shirts or jeans wouldn’t factor into the overall calculation.

Put simply, COGS equals the direct cost related to producing or purchasing products sold. Beyond that, just remember that the value of your inventory on hand is considered an asset until the inventory is sold.

Why is it important to calculate the cost of COGS?

Most businesses are in it to be profitable, and calculating your COGS is an important step to getting in the black. When you know your COGS, you can work to reduce the costs associated with selling, including the cost of your inventory.

COGS informs a business about the direct expenditures incurred in getting products ready for sale. For instance, if you know t-shirt fabric costs $5/yard, the labor to sew the shirts is $15/hour, and an average of $1 is spent on packaging each item, you can accurately price your t-shirts at a point where you can profit off the sale.

In this case, setting the t-shirts at $15 wouldn’t make you any money. Assuming each t-shirt uses two yards of fabric and takes 30 minutes to make, you need to price the t-shirts at $30 or more before you can even see a small profit.

Seriously, calculating COGS can make or break your business. Here are some of the other benefits of calculating COGS:

1. Helps create a pricing strategy

As demonstrated above, you can determine your selling price by knowing the direct costs incurred in producing or procuring products. Once you know these costs, you can figure out how to price your products to also cover your indirect expenses and earn a profit from the sale. But if you don’t know your COGS, you are honestly just guessing.

Overall, knowing COGS helps you determine how much profit margin you can keep on the products you sell.

2. Helps determine the total expenses incurred in selling products

Your profit and loss statement needs to list all your income and expenditures. By calculating the direct costs you have spent acquiring your stock, you can arrive at the total expenses incurred by including indirect expenses like your overhead, sales, and marketing costs.

You also need to know COGS before calculating your Inventory Turnover Ratio, which can help you make more informed decisions regarding your inventory and cut expenses further.

For example, if you calculate your inventory turnover ratio and find it’s pretty low, you’ll know you don’t need to replenish your inventory as often. That, in turn, means you can negotiate better deals with suppliers to further reduce costs.

3. Compare the market value of your product with your competitors

Determining profit margin by only considering direct costs incurred is an incomplete picture. If your prices are higher than your competitors you may make fewer sales.

If your prices are lower than your competitors, you can still incur a loss since your low profit margin might not cover your indirect expenses. COGS helps you to sell your product at a competitive price, grow sales, and, by extension, earn profits.

Now that you know the importance of calculating COGS, let’s learn the formula to calculate COGS.

How to calculate COGS

Here’s the formula to derive COGS:

COGS = Beginning Inventory + Purchases made during the period – Ending Inventory

To calculate the COGS for a reporting period, start with the value of the beginning inventory. If additional inventory was added during the reporting period, be sure to add the value of any new inventory produced or purchased to the value of the existing stock. Now, subtract the value of ending inventory from COGS sold for that reporting period.

Note, that this is a basic  formula and does not take into account items like returns, discounts, obsolete stock, and the inventory valuation method used. It’s still really useful, however, as shown in our breakdown below.

Example of COGS

Let’s assume that company X uses the calendar year to record their inventory. The beginning inventory value was recorded on the 1st of January, and the ending inventory value was recorded on the 31st of December.

The beginning inventory value was $20,000. During the year, the retailer realized that the business would sell more than the inventory received earlier in the year, so additional inventory worth $7,000 was purchased. At the end of the calendar year, the ending inventory value was worth $4,000.

Now, let’s work out the COGS for the entire year by using the following formula:

COGS = Beginning Inventory + Purchases made during the period – Ending inventory

COGS = $20,000. + $7,000 – $4,000.

Therefore, COGS = $23,000.

The COGS equals $23,000, as calculated. Use this formula to help with production, purchasing, and pricing decisions.

Calculating COGS can also help you calculate your profit for a reporting period and help with decisions to ensure that indirect costs are covered.

Suppose your revenue is $75,000 in a reporting period. Knowing the COGS, you can determine your profit will be $75,000 – $23,000 = $52,000.

COGS – Key business takeaways

The COGS formula can be used at an individual product level to help with decision-making before producing, procuring, and selling that product. It can help you make decisions like how much inventory you need to purchase or whether you might need to focus on marketing a slow-selling product, and it’s useful when tax season rolls around, too.

The COGS for a reporting period is the total COGS for all product sales for that reporting period. It is a vital metric included in your financial statements and used to calculate your gross profit for that reporting period.

Gross profit is a profitability measure that shows how well a business can cover its indirect expenses and earn a profit. The value of COGS will always depend on the direct costs of the products sold and the inventory valuation method used by the business.

Frequently asked questions

What is the difference between COGS and expenses?

COGS is a measure of the expenses associated with selling your goods. In particular, the direct expenses like labor, manufacturing, and materials. It does not include indirect expenses like rent or general office materials.

Is the cost of goods sold the same as profit?

No. The name cost of goods sold gives you a hint that COGS covers some of your expenses. However, you can figure out your profit if you know your COGS. To do that, use the following formula:

Revenue – Cost of Goods Sold = Gross Profit.

Remember, COGS tells you how much your items cost to make and sell; profit is how much you keep after these expenses.

Is the cost of goods sold taxable income?

In general, the IRS allows businesses to deduct some COGS-related expenses. For example, the IRS states you can include some business expenses in your COGS, which you subtract from your revenue to arrive at your gross profit (your taxable income).

If you calculate this way, you are not allowed to deduct those expenses a second time as a business expense!

Closing remarks

COGS is a big part of running a profitable business, and your inventory is a big part of COGS. To keep track of it all, you should invest in a cloud-based inventory and order management system like Cin7.

When you add in an inventory management system, you have a much clearer view of how to address any slumps, slow-downs, or sales. Working with Cin7 can help your business hold onto less while making more. Request a demo today.

Worker operating a lift truck in a warehouse with surrounding icons representing machinery operation and time management.

Reducing manufacturing waste: 11 strategies for small businesses

 

Manufacturing waste is an activity that uses resources but doesn’t add value to the end customer. Waste becomes a significant drain to the bottom line when left unchecked. From inventory waste, transportation waste, and defective products, waste can accrue in various areas across the company.

Have you ever hosted a dinner party just to discover that you have a week’s worth of leftovers at the end of the night? Waste, in principle, is a natural part of building or creating something. In manufacturing, however, you can’t put waste in Tupperware and have it for lunch the next day. In business, the consequences of waste have compounding effects that can negatively impact your bottom line.

The results of manufacturing waste are extreme. Inventory and manufacturing waste total an average loss of $163 billion annually, mainly due to human error in inventory management and manufacturing.

So how does manufacturing waste happen? And what exactly is classified as waste? Waste isn’t always the inventory that doesn’t make it to the customer’s door; it’s also the processes that don’t add any value to the customer. However, some activities, while considered waste, are vital to the production process.

You can assess waste in two ways:

  • Product development: Waste that directly impacts revenue but is essential. For example, production planning, quality testing, creating warehouse reports, etc.
  • Pure waste: Waste that doesn’t add value and is unnecessary. For instance, waiting for someone to finish using a machine before you can use it.

In this post, we’ll explore the different types of waste, strategies for reducing it, and how cutting waste can have significant, and sometimes unexpected, benefits for your growing business.

Key Takeaways:

  • In lean manufacturing, waste is broken down into 8 specific types: inventory, transportation, waiting, motion, overproduction, defects, overprocessing, and underutilized staff.
  • Companies employ many different strategies to reduce manufacturing waste, like optimizing warehouse layouts and implementing closed-loop systems.
  • The benefits of reducing waste include cutting costs, enhancing efficiency, and gaining a competitive advantage.
  • Using a top ERP software for manufacturing can help you make smarter inventory decisions that help in cutting waste.

 

What are the types of manufacturing waste?

When companies examine ways to reduce waste, many look to the lean methodology — a philosophy of continuous improvement rooted in finding and removing waste in workflows. Lean methodology divides waste into eight specific types:

Overview of eight types of lean manufacturing waste with corresponding icons for each.
  • Inventory: Excess stock that becomes waste.
  • Transportation: The process of moving stock from one place to another.
  • Waiting: The time a human or machine has to wait for the completion of one task to start another.
  • Motion: Unnecessary movement that could be used for another purpose.
  • Overproduction: Excess products that go unused.
  • Defects: Products that don’t meet customer specifications and have to be discarded.
  • Overprocessing: Processes that don’t directly deliver value to customers
  • Under-utilized staff: Workers whose skills or time don’t deliver value to customers.

As you can see, manufacturing waste is not always scrap materials. It can also take the form of unused or misused time and resources.

How to reduce manufacturing waste

Now that we’ve defined manufacturing waste, how can small businesses reduce it? Remember, some waste is necessary to achieve the end result, so manufacturers can never totally eliminate waste.

However, there are strategies businesses can employ to reduce waste as much as possible. Here are 11 proven methods for success:

Two people in a warehouse using tablets and various strategies for waste reduction.

1. Implement lean manufacturing principles

The idea behind lean manufacturing, or lean warehousing, is to maximize efficiency by reducing all efforts and resources that don’t drive value to the customer.

Under lean principles, every aspect of the manufacturing process is examined under a microscope to pinpoint where inefficiencies stem from. Some improvements that may come from implementing lean principles may include:

  • Reorganizing machines for maximum efficiency.
  • Reevaluating employee schedules to ensure everyone delivers value while on the shop floor.
  • Rewriting processes to eliminate any gaps in efficiency.

2. Prioritize warehouse organization

In manufacturing, warehouse design is critical. Warehouses should always be well-marked and organized so shop floor workers never miss a beat.
Clearly mark all the locations of assets throughout the warehouse, including:

  • Inventory
  • Supplies
  • Tools

Over time, the markings may fade, become nonexistent, or obsolete. Worn signage may not affect longtime employees, but new hires and temporary workers may have difficulty navigating through a warehouse that isn’t marked or organized. When performing your regular waste audits, prioritize clear labeling.

Cin7 Core’s WMS app takes the legwork out of warehouse organization for businesses. With our advanced features, you can create dedicated zones, draw out walking paths, and more. With all this information available, you can easily visualize your most efficient warehouse layout.

3. Train employees on waste reduction practices

Businesses can create waste reduction processes and train employees on them so everyone is aware of the little ways they can reduce waste on the shop floor.

For example, businesses can establish standard operating procedures in the warehouse so everyone knows the expected quality and quantity of products during production. If everyone is sufficiently trained on the standards, waste is far less likely.

4. Optimize shop floor communication

Seamless communication on the shop floor is also key for ensuring everyone has the most up-to-date information regarding product specifications. Inefficient communication can lead to defective products and wasted time.

Easy ways manufacturers can pass information to the shop floor include:

5. Create goals and benchmarks for waste reduction

Attaching a specific benchmark to a goal makes it much easier to track progress and see how far you have to go realistically.

Example: If your company’s goal is to reduce waste, put a measurable value behind it.

  1. Calculate the amount of waste you’re currently seeing and try to reduce it by 15% before the end of the quarter.
  2. If you fall significantly short of that, your processes may need an overhaul.
  3. If you fall just below it, you know you’re trending in the right direction.

6. Minimize water usage

Wastewater and industrial sludge comprise a significant portion of manufacturing waste streams. You can reduce them by minimizing water usage in the operations.

You can do this by substituting water with:

  • Chemical drying agents.
  • Dry machining.
  • Reverse osmosis.
  • Utilizing a membrane biological reactor system.

You can also encourage employees to reduce bottled water, as plastic drinking bottles comprise a major portion of plastic waste. Switch to drinking water in glasses or promote using reusable bottles in the workplace.

7. Optimize production scheduling

If you can streamline production schedules, you can cut back on wasted time. The best inventory management software includes automated demand forecasting as a built-in feature, so you can schedule accordingly and prevent unplanned downtime.

Once you know what demand looks like, you can create optimized schedules and ensure time and energy never goes to waste.

Watch our webinar on how to prepare for seasonal demand.

8. Minimize overstock and overproduction

Overstock and overproduction are perhaps the most common types of manufacturing waste. A great way to limit this type of waste is by implementing a just-in-time inventory system.

In a just-in-time system, manufacturers order raw materials from suppliers right before production begins. By waiting until the last minute to order these materials, manufacturers can keep production levels low, reducing the chance of obsolete inventory and deadstock.

9. Adopt a closed-loop manufacturing system

Green chemistry, or designing materials to reduce hazardous waste, is an excellent technique to reduce waste generated by various processes, but if that’s not a viable solution, consider a closed-loop manufacturing system.

A closed loop helps you:

  • Keep track of inventory.
  • Utilize recycled materials in the production cycle.

Closed-loop systems extend the life span of chemicals by maximizing their efficiency. It helps reduce contamination and minimizes the amount of new chemicals you need to purchase.

10. Reduce packaging

Redesign product packaging and ensure it uses the minimum amount of materials. Incorporate recyclable or reusable packaging content, such as air packs or corn-based packing peanuts, for cushion.

Buying products in bulk can also help reduce your overall packaging volume.

11. Optimize inventory management

Connected inventory performance isn’t just about quickly getting products to customers. It’s also about managing inventory in an efficient and growth-oriented way — and waste is often the enemy of growth.

By optimizing your inventory management through comprehensive software, you can see where waste is coming from and then take the necessary steps to reduce it. While sometimes waste is apparent, other times it’s harder to find. An end-to-end tool can provide a broad look at your inventory processes and help you determine where to improve.

Request a demo of Cin7 to see inventory performance in action.

 

Benefits of waste reduction

Minimizing waste provides several significant benefits for a business, some more obvious than others. Here are a few well-known, and some lesser-known, benefits of cutting back on manufacturing waste:

Four benefits of reducing waste for small businesses featuring icons to represent each benefit.

Reduces time and costs

Spending money on something you don’t need or don’t use is never good. Analyzing your manufacturing processes to see where waste is happening can help you significantly reduce costs — whether it’s on materials, labor, or both.

By creating a process built to prevent waste, you can also save time as you enjoy a more hands-off approach to inventory management. With all this time back, you can focus on the more important tasks, like growing your business.

Increases operational efficiency

Reducing waste doesn’t just mean cutting down on obsolete inventory — it also means filtering out the processes and time that don’t drive value.

Once you determine where the waste stems from, you can make changes that lead to more efficient processes. This might mean:

  • Reevaluating your warehouse design for optimal efficiency.
  • Reducing the amount of labor at a given time.
  • Cutting back on repetitive QA processes.

Determining and deleting inefficiency can help you produce faster and grow quicker — with less money spent.

Creates a positive environmental impact

Overproduction and over processing can have a damaging environmental impact and should be avoided as much as possible.

Reducing packaging waste or using recycled materials can benefit your company’s production and its commitment to sustainability, giving you a competitive advantage in both growth and reputation.

Gives you a competitive advantage

It’s not common that companies will go the extra mile in reducing manufacturing waste. If you commit to prioritizing inventory control, performing waste audits, making efficiency changes, and reevaluating your processes, you can likely set yourself apart in your market.

 

How Cin7 can help

Waste is often hard to recognize, especially if you’re a growing business that has to focus on various other business items. However, adding automation to your inventory processes can help you glean where your inefficiencies lie and where waste is prominent.

Connected inventory performance allows businesses to see inventory from a bird’s-eye’s view and easily dig into where they can make improvements. With demand forecasting, reordering, and more done for you, you can create an inventory management machine impervious to waste.

Start a free trial of Cin7 to start reducing waste today.

A woman using a laptop to work on material requirements planning (MRP).

What is material requirements planning (MRP)?

Material requirements planning (MRP) software manages manufacturing processes. It’s one of the earliest software developed for inventory and supply chain management. MRP aims to hold the minimal amount of raw inventory needed for production. For this reason, MRP relies on strict data protocols.

MRP software isn’t a new innovation. Believe it or not, MRP software was used in the 60s when Joseph Orlicky developed it to help growing businesses like Black & Decker.

While its beginnings are humble, today, the market for MRP software is worth over $5 billion. Understanding MRP can give you a deeper knowledge of modern inventory management and connected inventory performance solutions.

Material requirements planning (MRP) software helps manage and optimize manufacturing processes. MRP helps companies keep the minimal raw inventory needed by outputting purchase orders and other reports. MRP relies on data and requires strict data protocols to output these documents.

MRP is like the grandfather of enterprise resource planning (ERP) software, and the principles of MRP are an important part of ERP. We want to explain MRP so you can better understand how this standalone solution works for businesses such as hospitals and restaurants. We will also explain how it has informed modern solutions.

Key Takeaways

  1. MRP helps manage and optimize the manufacturing process.
  2. MRP relies on consistent and accurate data input.
  3. MRP is a core element of modern ERP systems.

How does MRP work?

MRP is a product-oriented approach to manufacturing and inventory control. This is why the main inputs include the master production schedule, inventory status file, and bill of materials (BOM). It’s all in support of the manufacturing process.

The two main phases of the MRP process are planning and execution. Remember that MRP software relies on consistent and accurate inputs. Businesses need to test and revise their systems to ensure accuracy.

Phase 1: Planning 

The planning phase sets the foundation for the entire process. MRP doesn’t leave room for error, so documents need to meet the needs of the MRP system. For this reason, all departments need to make sure they’re using the same standards when creating:

  • Bill of materials (BOM)
  • Master production schedule (MPS)
  • Inventory status file (ISF)

Once all the key documentation is in order, you can input it into the system. It’s important to strive for perfection, but perfection is also unlikely. With time and adjustments, the system can begin to run smoothly.

Phase 2: Execution

With key documents ingested, the MRP system can use this information to monitor the manufacturing process. In basic terms, it will look at both sets of information to determine the minimum amount of materials required. At a top level, the MRP system then determines:

  • Materials required
  • Amount of materials required
  • When the materials are required

The MRP can then generate reports based on this information. This includes purchase orders (POs), material plans, work orders (WOs), and reports. With accurate input data, it can predict potential disruptions and provide helpful suggestions.

Why is MRP important?

MRP is important because it optimizes ordering, planning, manufacturing, and supply chain management. The MRP process focuses on your product and strives for an optimal process that reduces associated costs.

MRP is a longstanding technology that is still popular today. Additionally, it’s a key component of enterprise resource planning (ERP) and the best inventory software.

Challenges and benefits of MRP

The demands of an MRP system can lead to benefits and challenges. It can lower costs and optimize production, but this can be difficult to achieve without strict guidelines and training.

A list of MRP pros and cons.

MRP inputs

MRP inputs are the key documents used by the system for analysis, monitoring, and generating outputs. Data integrity is key to a successful outcome, and all inputs need to be structured cohesively for the MRP system to understand them. To make sense of this, we will break down each of the MRP inputs.

Bill of materials (BOM)

The bill of materials (BOM) lists the materials required to manufacture a finished product. It can provide details on raw materials, components, subassemblies, consumables, and more.

The main details of a BOM include:

  • Type of materials
  • Quantity
  • Cost
  • Procurement instructions

The details included in a BOM can be extensive, including product drawings and design instructions. One of the few details excluded from a BOM is labor. However, the master production schedule will account for this.

Master production schedule (MPS)

The master production schedule (MPS) is the bedrock of the MRP process. The MPS outlines important information and timeframes concerning the production of finished products.

MPS documents include detailed information on things like:

  • Deadlines
  • Demand forecasting
  • Alternative scheduling options
  • Bill of materials
  • Inventory levels
  • Staffing

For a successful outcome, the MPS needs to work with the information provided in the BOM. The MPS also requires detailed information for inventory levels.

Inventory status file (ISF)

The inventory status file (ISF), or inventory status record, provides inventory information for the MRP system.

The ISF includes information on:

  • Available inventory (including safety levels)
  • Ordered inventory
  • Procurement details (including price and lead times)

This information informs MRP outputs, the outcome of the MRP process, such as purchase orders, and other useful reports.

A visualization of MRP inputs and outputs.

MRP outputs

MRP outputs, the manufacturing documents generated by the MRP process, rely on high-quality MRP inputs. This means the MRP outputs are only as good as the MRP inputs. With enough testing and fine-tuning, the MRP will output highly useful and detailed documents.

Purchase orders (POs)

MRPs create purchase orders (POs) based on details from the input data. The resulting POs account for time-sensitive details like purchase order lead times.

The MRP can even make suggestions for changing existing orders. This information supports an optimized production that accounts for available materials. Businesses can produce items based on demand and availability, avoiding surplus stock.

Transfer orders

Transfer orders generated by the MRP will detail the exact materials for transfer between warehouses. As with POs, these orders will make recommendations based on known time frames.

Transfer orders can provide information on:

  • What to transfer
  • Amount needed
  • Storage area
  • Destination

Work orders (WOs)

Since MRPs know what is needed and when they can generate highly optimized work orders (WOs). They can also forecast demand and make recommendations for creating the appropriate amount of stock.

Work orders can provide details on:

  • Product
  • Route (steps for building)
  • Materials, cost, and quantity
  • Labor and cost
  • Machines and cost

Other reports

Aside from the main reports listed above, the MRP can output other detailed reports. These are “secondary” reports, whereas the above outputs are “primary” MRP reports.

Secondary MRP outputs address:

  • Performance control: order availability and other supply chain concerns
  • Planning reports: inventory forecasting and demand planning details
  • Exception reports: internal issues like delayed orders and manufacturing errors

A timeline illustrating the transition of MRP to MRP II to ERP to Cloud-based ERP.

MRP vs. ERP

Enterprise resource planning (ERP) is an evolution of traditional material requirements planning (MRP). ERP software offers many solutions rather than a stand-alone solution like MRP.

MRP focuses on the manufacturing process, but ERPs can involve and inform all departments. ERPs collect information from manufacturing to marketing and beyond. The result is a broad range of modules that support day-to-day organization.

ERPs can provide:

  • Workflow automation
  • Real-time monitoring
  • Customer relationship management
  • Project management
  • Inventory management
  • Compliance and risk management

Beyond traditional ERP, Cloud ERP platforms offer an end-to-end solution for product-focused businesses. These advanced inventory management systems can integrate operations and finances across multiple locations. With cloud ERP technology, businesses can stay flexible with up-to-the-minute inventory information.

Who should use MRP?

MRP is best for large-scale manufacturers with predictable batch production needs. It may be less suitable for businesses manufacturing a wide range of products. Additionally, it is a production-focused tool that doesn’t provide a wide range of modules.

Small- and medium-sized businesses that sell products should consider an end-to-end cloud ERP platform. Small teams can enjoy powerful inventory management, automation, and seamless e-commerce integration.

Take your business to the next level with a free trial of Cin7’s Cloud ERP and Inventory Management.

A man works on a tablet inside a warehouse filled with boxes.

21 top manufacturing ERP software for 2024

The three top manufacturing ERP software are Cin7, Oracle Cloud ERP, and NetSuite ERP. These solutions offer a comprehensive library of advanced features coupled with strong onboarding and customer support.

Enterprise resource planning (ERP) software is often described as the central nervous system of a company. While you may be skeptical of this comparison, it makes sense.

Like the central nervous system controls the human body and mind, ERP systems use business intelligence to regulate a company’s operations — centralizing the core processes that spur company growth and success.

Manufacturing ERP software helps a company with every aspect of its business operations, from accounting to finance, procurement, supply chain management, HR, and more. And with modern ERPs operating predominantly through cloud-based technology, it’s easier than ever to take the manual work out of running a business, so you can focus more on growing it.

With technology like this readily available, small business owners can benefit significantly from cloud-based ERP software, but these systems aren’t one size fits all.

In this post, we’ll break down the 21 best manufacturing ERP software solutions, who they’re best for, some pros and cons, and what you should look for when selecting a manufacturing ERP software.

Methodology: To create our list, we considered ease of use, features and functionality, specializations, customer support, and cost.

Best manufacturing ERP of 2023:

  1. Cin7: Best comprehensive solution for small to midsize companies 
  2. Oracle Cloud ERP: Best for large manufacturing companies
  3. Netsuite ERP: Best for enterprise-level companies 
  4. SAP Business One: Best for sustainable supply chain management
  5. xTuple: Best for small to mid-sized manufacturers 
  6. ERPNext: Best for retailers and wholesalers 
  7. Microsoft Dynamics 365: Best for current Microsoft customers 
  8. Striven: Best for small businesses 
  9. Acumatica: Best for small manufacturers
  10. SYSPRO: Best for startups 
  11. Epicor Prophet 21: Best for warehouse management 
  12. Infor Syteline: Best for enterprise-level companies 
  13. Sage Intacct: Best for finance and accounting 
  14. IFS Cloud: Best for process manufacturers 
  15. Odoo: Best for customizable ERPs
  16. Plex ERP: Best for plant floor visibility 
  17. Deacom: Best for batch and process manufacturers
  18. Global Shop Solutions: Best for customer service 
  19. QAD Systems: Best for markets with regularly changing demand 
  20. Aptean: Best for food and beverage companies
  21. Aquilon: Best for startups and growing companies
A list of the three best manufacturing ERP software and who they’re best for.

1. Cin7

Best for: Small to midsize businesses looking for an easy tool to maintain that’s quick to get up and running

While traditional ERPs can often be expensive and complicated, Cin7 makes enterprise planning simple and affordable. Perfect for small to mid-sized businesses, Cin7 only takes a few weeks to implement — unlike some systems that take months.

Despite being accessible and easy to use, Cin7 doesn’t sacrifice the advanced features and automation that make ERPs a worthy investment for businesses of any size. By centralizing sales, reporting, accounting, and HR in one place, Cin7 eliminates the chance of manual error in company processes through automation. And most importantly, it empowers product sellers to do what’s most important: grow their business.

  • Pros: Affordable, easy to use, and tailored to small and mid-size businesses
  • Cons: Not ideal for large enterprise corporations
  • Price: Starting at $325/month

Request a demo or trial of our ERP and small business Inventory Management software today

2. Oracle Cloud ERP

Best for: Large manufacturing companies looking for an ERP with robust capabilities

While Cin7 is best for small and mid-sized businesses, Oracle Cloud ERP speaks more to large companies looking for a more advanced tool with features specific to the enterprise level.

Large brands like Chipotle, Cisco, and FedEx use the Oracle Cloud ERP because it understands how to manage and scale with large companies — making it a good choice for any enterprise company looking for a change in their ERP provider.

  • Pros: Robust features tailored to enterprise corporations
  • Cons: Expensive and difficult for small businesses to implement
  • Price: Available upon request

3. NetSuite ERP

Best for: Large corporations looking for a customizable ERP solution

Owned by Oracle, Netsuite’s ERP solution is a solid choice for large-scale manufacturers looking for a centralized platform for production management, supply chain management, sales, and more.

A top choice for global businesses, NetSuite’s ERP allows you to keep tight control over your business operations even as it starts to expand globally. As your business grows and sells more and more products, there’s no room for error — and a product like NetSuite ensures manual error won’t slow down business growth.

  • Pros: Easily customized to fit business needs
  • Cons: Expensive and limited customer support
  • Price: Available upon request

4. SAP Business One

Best for: Small manufacturing companies looking to emphasize supply chain sustainability

SAP Business One’s major appeal to customers is its emphasis on sustainability in the supply chain, as its software has one of the highest Environmental, Social, and Governance scores (ESG) in the software industry.

Beyond sustainable practices, SAP offers simple-to-use features for small manufacturers, allowing them to easily integrate customer management, sales, accounting, and more in the same place.

  • Pros: Includes solutions that allow businesses to operate more sustainably
  • Cons: Lacks a built-in HR solution
  • Price: Available upon request

5. xTuple

Best for: Small to mid-size manufacturers looking for easy-to-use software

xTuple offers a one-price approach, meaning all customers receive the same product for the same price. This system builds customer trust by ensuring they don’t get overcharged. Still, the system also limits xTuple’s ability to tailor their product to specific customer needs.

The product itself, however, is a solid choice for small to mid-size manufacturing companies looking to scale their business. With numerous solutions and integration features, business owners can focus on growth instead of day-to-day operations.

  • Pros: Offers all-inclusive pricing
  • Cons: Less customizable than other software
  • Price: Available upon request

6. ERPNext

Best for: Retailers and wholesalers looking for a centralized ERP platform

For retailers and wholesalers looking for more visibility into the production cycle, ERPNext is an effective solution. ERPNext speaks especially to business owners wanting more control over the production cycle — allowing users shop floor visibility and integrated purchasing, accounting, and financial reporting.

Additionally, ERPNext includes a subcontracting feature for retailers that outsource to suppliers. With the subcontracting feature, you can easily view your supplier’s operations and manage your retail.

  • Pros: Affordable platform with an easy-to-use interface
  • Cons: Fewer functionalities than more robust tools
  • Price: Cloud software starts at $10 per site per month

7. Microsoft Dynamics 365

Best for: Small and mid-sized companies currently using the Microsoft Suite

Microsoft Dynamics 365 is especially appealing to current Microsoft customers as the ERP easily accesses other Microsoft tools, like Excel, other 365 products, Power BI apps, and more.

Designed to work together with your existing systems to maximize efficiency, Microsoft Dynamics 365 is an excellent solution for businesses drowning in spreadsheets and looking to take manual work out of the day to day.

  • Pros: Easily integrates with other Microsoft products
  • Cons: Not ideal for enterprise organizations
  • Price: Starting at $20 per user per month

8. Striven

Best for: Small to midsize businesses

An affordable option for small businesses, Striven provides companies with a comprehensive platform with features for accounting, HR, CRM, and more.

Striven also offers companies a variety of business management features, including a calendar hub, social media integration, an internal news feed, and more. The tool also integrates with Google Calendar, so you don’t have to worry about shifting internal operations to a new system.

  • Pros: Comprehensive platform available for an affordable price
  • Cons: More difficult to learn than other comprehensive platforms
  • Price: Starting at $35 per user per month

9. Acumatica

Best for: Smaller manufacturers looking for a comprehensive solution

Acumatica differentiates from competitors by offering certain features that other manufacturing ERPs don’t, like field service, service management, and project accounting modules.

Acumatica strives to adapt to changing technology to stay ahead of the curve. The tool offers an augmented reality feature, virtual reality, AI, and IoT to add the most modern technology to its ERP.

  • Pros: Offers out-of-the-box features that many competitors don’t
  • Cons: Advanced features are difficult to learn
  • Price: Available upon request

10. SYSPRO

Best for: Young companies using an ERP for the first time

SYSPRO appeals primarily to young and growing manufacturing and distribution companies as it allows you to purchase the tool in modules and add more as you need them. As a result, companies can purchase the exact module that fits their current business needs and increase as the company grows and shifts.

As a young company, your needs will fluctuate regularly. SYSPRO’s modular framework is great for young companies experimenting with an ERP for the first time.

  • Pros: Sold in modules so businesses can invest in only the modules they need at a given time
  • Cons: Expensive and lacks certain standard features, like HR
  • Price: Available upon request

11. Epicor Prophet 21 

Best for: Manufacturers looking to create a more efficient distribution process

Epicor Prophet 21 aims to streamline the distribution process for manufacturers, offering beneficial modules including warehouse management, inventory modules, supply chain management modules, and more.

Epicor Prophet 21’s warehouse management module includes multiple features that can significantly improve the distribution process. Offering barcoding, label printing, and more, Epicor Prophet 21’s library of modules is a reliable tool for manufacturers looking to boost efficiency in current processes.

  • Pros: Includes a variety of features for streamlining distribution
  • Cons: Emphasizes distribution over production
  • Price: Available upon request

12. Infor Syteline

Best for: Enterprise-level manufacturing companies looking to streamline manufacturing processes

For manufacturing companies tasked with juggling lots of moving parts, Infor Syteline is a solid choice for maximizing efficiency. With features ranging from quality control to planning, scheduling, and more, Infor Syteline’s platform can be great for manufacturing companies looking for a tool with a complete set of features.

Infor Syteline lends itself more to companies with complex manufacturing processes — which makes it less relevant for small and mid-size companies. For large companies looking to move to a new ERP that can adapt to their complex processes, Infor Syteline is a strong choice.

  • Pros: Equipped with advanced features built to handle complex manufacturing processes
  • Cons: Modules are typically too advanced for small manufacturers
  • Price: Available upon request

13. Sage Intacct 

Best for: Manufacturers looking to centralize finance and accounting

Sage Intacct’s strength is as a financial management software, making it an excellent choice for manufacturing companies looking to automate monotonous finance tasks to improve efficiency and reduce the chance of manual error.

Sage Intacct provides detailed financial reports that give you insight into your business performance, so you can see your exact bottom line. Beyond that, the software additionally prioritizes security, so you never have to worry that your financials are at risk.

  • Pros: Automates financial management for businesses in multiple industries
  • Cons: Specifically a financial management software; less comprehensive than other solutions
  • Price: Available upon request

14. IFS Cloud

Best for: Manufacturers looking for an end-to-end solution

IFS Cloud offers a range of industry-specific solutions for businesses in a variety of different verticals, including manufacturing, aerospace and defense, telecommunications, and more.

For manufacturers, IFS Cloud tailors its product specifically to automotive, chemicals, food and beverage, high-tech manufacturing, industrial manufacturing, and life sciences. IFS Cloud can be a great option for streamlined inventory management for businesses in these verticals.

  • Pros: Includes industry-specific solutions to fit specialized business needs
  • Cons: Less applicable to companies outside of their five core industries
  • Price: Available upon request

15. Odoo

Best for: Manufacturers looking for a customizable ERP

Odoo is unique because it’s an open-source ERP, meaning that developers can build apps directly within the solution. As a result, Odoo is constantly growing and evolving with new apps and features.

Beyond the open-source framework, Odoo provides an all-in-one solution for manufacturers looking to centralize their business operations. Doubling as a CRM, Odoo makes it easy for businesses to manage customers, processes, and more.

  • Pros: Relies on an open-source framework, so apps are constantly being added
  • Cons: Charges for each additional application
  • Price: Starting at $24.90 per user per month for all apps

16. Plex ERP

Best for: Manufacturers looking for more plant floor visibility

Plex ERP works especially well for manufacturers who are looking for a centralized view of all parts of their operation — from the plant floor to the c-suite.

Plex ERP’s smart manufacturing platform automates business processes and tracks data so business owners can make more informed decisions. Plex ERP lets manufacturers focus solely on growth by automating tasks and connecting processes in a single system.

  • Pros: Designed specifically for manufacturing processes
  • Cons: Less user-friendly than competitor software
  • Price: Available upon request

17. Deacom

Best for: Batch and process manufacturers

A solid choice for startups and growing manufacturing companies, Deacom provides a system that reduces time spent on manual processes and simplifies complex manufacturing processes.

Used primarily by process manufacturers and distributors, like food and beverage companies and cosmetics companies, Deacom thrives in creating process control so that companies can build efficient and repeatable processes.

  • Pros: Full transparency on pricing
  • Cons: More difficult to use than competitors
  • Price: Available upon request

18. Global Shop Solutions

Best for: Manufacturers looking for a customer-first software solution

Global Shop Solutions is one of the more approachable companies on our list as a family-owned business operating out of Houston, Texas. Their comprehensive solutions streamline production, finance, and order management into a single solution, making it easy for manufacturers to view all their operations.

Able to track shop floor data and forecast changing market trends, Global Shop Solutions is designed so business owners can focus on growing their businesses instead of managing operations.

  • Pros: Family owned, offers a customer-centric approach
  • Cons: Limited onboarding
  • Price: Available upon request

19. QAD Systems

Best for: Enterprise manufacturing companies that see regular demand fluctuations

QAD Systems appeals to companies that they deem “adaptive enterprises.” These companies regularly see demand swings and market shifts — either from macroeconomic changes or general market instability.

QAD Systems strives to be the best software for companies that regularly need to adapt to new demand planning and changing market conditions.

  • Pros: Keeps “future-proofing” at the forefront of its strategy
  • Cons: Exchanges some basic functions for more advanced functionality
  • Price: Available upon request

20. Aptean

Best for: Enterprise food and beverage companies

While Aptean has solutions tailored to companies in a variety of verticals, food, and beverage is their bread and butter.

Named the Customer Value Leader in Food and Beverage ERPs by market research Frost and Sullivan, Aptean offers solutions for different segments within the food and beverage industry, like bakeries, beverages, and produce — to name a few. With solutions tailored to whatever food and beverage vertical you’re in, Aptean will likely fit your needs.

  • Pros: Customized solutions for multiple segments within the food and beverage industry
  • Cons: No free trial
  • Price: Available upon request

21. Aquilon

Best for: Small and mid-sized businesses looking to streamline distribution processes

Aquilon’s manufacturing ERP rounds out our list — a solid choice for small to mid-size manufacturers looking for integrated manufacturing, distribution, and financial management.

Claiming to be easier to use than competitor software, Aquilon appeals to small businesses as a simple and customer-centric solution. Aquilon can be an effective choice for young companies ready to invest in their first ERP.

  • Pros: Easy platform for small business owners to navigate
  • Cons: Less advanced features than competitors
  • Price: Starting at $120 per user, per month

What does ERP mean and how does it work?

A woman works on a tablet in a warehouse next to the definition of Manufacturing ERP software.

ERP means Enterprise Resource Planning, which describes an organization’s system or software to plan and manage business operations.

The best manufacturing ERPs aim to seamlessly integrate into a company’s processes and centralize them into a single source of truth, thus streamlining operations and bolstering productivity.

What are the benefits of a manufacturing ERP? 

When it comes to manufacturing, the most effective ERPs are typically able to:

  • Automate manual processes to reduce manufacturing lead time and manual error.
  • Centralize processes across departments.
  • Track data in real time and generate reports.
  • Adapt to changing market conditions.

The benefits of an ERP are plentiful, and although you may be able to accomplish these tasks yourself, an ERP’s greatest advantage is the time it gives back to you to grow your business.

What to look for in ERP software

The best ERP software is cloud-based, well-rounded, and customer-friendly.

Manufacturing ERPs should check a few essential boxes. When selecting an ERP software, be sure you’re looking for a tool that is:

Cloud-based 

Cloud-based solutions have largely replaced on-premise solutions as the ideal way to manage resources — and rightfully so. While on-premise software runs on a company’s hardware, cloud-based solutions run on the provider’s servers — making them accessible through a web browser.

Because of the ease of use, cloud-based solutions are a more robust option than on-premise solutions. This technology reduces labor and time spent on resource planning through automation and increases agility, giving you the time and freedom to grow and scale your business.

Well-rounded 

Before you select software, consider your needs. Are you just looking for supply chain management? Or do you need HR, sales, finance, accounting, and more centralized in a single platform?

Resource management is a headache, so your goal should be finding software that allows you to not think about it. As a result, make sure you’re looking for well-rounded software that accounts for all your business needs.

Customer-friendly 

Software companies won’t, and shouldn’t, expect you to be experts in their software right after you buy it. And even the most straightforward software can be difficult to implement and use right off the bat.

When browsing software, look at companies that offer a thorough onboarding process and dedicated customer support. This not only helps you quickly get your team up to speed on how to use the platform, but it also helps you to get the most out of the service.

FAQ

Still have questions about the importance of ERP software? We’ve got you covered. Here are some common questions and answers about everything ERP.

What does ERP stand for in manufacturing?

ERP stands for “Enterprise Resource Planning” in manufacturing. It refers to a system of organizing all resources and processes related to manufacturing, like shipping, financial management, supply chain management, and more.

Why is ERP important?

ERP is important because it can be essential in helping businesses grow. ERPs work to maximize efficiency in an organization and bolster productivity, so your company can gain more customers and revenue.

How much does a manufacturing ERP system cost?

The cost of a manufacturing ERP system depends on the number of users, the type of software, the included features, and more. As a result, the software can range from free basic plans to upwards of $10,000 per month for the most advanced plans.

What is the difference between MRP and ERP software?

While MRPs focus exclusively on manufacturing, ERPs streamline broader organizational processes along with manufacturing processes, like accounting, HR, finance, and sales.

What is the best manufacturing ERP software? 

The best manufacturing ERPs are tailored to your business needs, easy to use, equipped with great customer support and onboarding processes, and adaptable. Your ERP should grow as your business grows, so it’s crucial to find a system designed to scale with you.

At Cin7, we know growing a small business is no easy task. Our ERP and inventory management software takes the headaches out of your usual day to day, letting you focus on driving growth.

Start your free trial today to see Cin7 in action.

What is warehouse automation? Types, trends, and benefits

Warehouse automation uses technology to automate processes and procedures. The desired outcome is to reduce human input and maximize efficiency. Warehouse automation integrates robotics, sensors, and software into existing warehouse technologies.

Can you believe we live in a world where robots and humans work together? It sounds like the plot of a science fiction movie, but it’s actually happening. From large corporations to small businesses, the future of warehouses is automated.

Warehouse automation has shown stunning growth since the 2010s, as projections indicate the market could be worth $41 billion by 2027. We can attribute most of this growth to the e-commerce industry, and projections indicate those sales will reach $8.1 trillion by 2026.

But it’s not just e-commerce retailers who use warehouse automation. BMW, for example, optimizes its warehouse processes with Automated Guided Vehicles (AGVs) and inventory management software. Walmart recently invested in Symbiotic, a robotics and warehouse automation company, and plans to automate warehouses and retail locations over the next few years.

Warehouse automation uses automated technology to optimize processes, improve efficiency, gather data for insights, and minimize repetitive tasks for workers. More than robots, warehouse automation is made possible by automation software, Internet of Things (IoT) devices, automated vehicles, and even the blockchain.

As automated warehouse systems become the norm, businesses must stay ahead of market trends and technological developments. Basic knowledge of warehouse automation can help business leaders make informed decisions. In this article, you’ll learn the:

  • Types of warehouse automation available
  • Benefits of warehouse automation in business
  • Challenges of warehouse automation
  • Top warehouse automation trends

 

4 types of warehouse automation

Warehouse automation technology comes in many forms that you can combine in simple or complex ways. This spectrum of complexity spans from basic conveyor systems to advanced robotics integrated with AI technology. We want to provide a list of available methods by explaining the types of warehouse automation technology available in today’s market.

Receiving and shipping

Automation can’t change fuel prices, but it can improve the efficiency of outbound shipping and inbound receiving processes. These efficiencies can save businesses money and improve customer satisfaction by minimizing touchpoints and decreasing the Total Cost of Ownership (TCO). Here are a few leading methods in automating logistics:

  • Automated inbound receiving technology: This technology combines automated versions of conveyors, scanners, labelers, and order verification to simplify inbound receiving tasks. A complex automated receiving system can move, identify, label, and verify all goods against the purchase order without requiring human labor.
  • Automated outbound shipping technology: Outbound shipping automation can detect important labels (including human writing), detect damage, measure items for shipment, and ensure order accuracy. The shipment information is made available immediately through an integrated warehouse management system (WMS).
  • Drones and delivery robots: Drones and delivery robots are changing last-mile deliveries. Customers can receive goods faster and without needing human labor in the shipping process.

Storage and retrieval

The physical act of storing and retrieving goods can be repetitive and dangerous for humans. Offloading these tasks can improve productivity while minimizing safety concerns. Goods-to-person (GTP) technologies can improve accuracy and efficiency when storing or retrieving goods. Be it for manufacturing or order fulfillment.

In one example, Kubota Canada recovered 83% of their floor space by using Vertical Lift Modules (VLM) and horizontal carousels in their distribution center. The benefits of their reduced storage were twofold: Their warehouse became more efficient, and they used the newly freed space for profit.

Available solutions are detailed below.

  • Automatic storage and retrieval systems (AS/RS): AS/RS systems combine robotics and computer systems to augment storage and retrieval in a warehouse. The optimization of storage can increase the density of goods and maximize available storage space. The AS/RS category has many products, including vertical storage systems, horizontal carousel modules, and VLMs.
  • Automated guided vehicles (AGV): These vehicles can carry loads and handle materials with little human input or operation. Companies will primarily use them within warehouses, distribution centers, assembly lines, and manufacturing facilities. In general, their movement is limited to fixed paths and rail systems.
  • Autonomous mobile robots (AMR): AMRs are similar to AGVs, except that robots have the advantage of dynamic mobility. AMRs use advanced sensors and AI processing to adapt and redefine their paths in a warehouse setting. For this reason, they can work safely near humans.
  • Exoskeletons: Exoskeletons are machine suits that augment a human’s capacity for work. They currently address gaps in automation, where a human is required to perform physically demanding tasks unsuitable for robots. Exoskeletons use sophisticated automation and sensors to improve a worker’s ability to lift and move heavy objects.

Picking and sorting

Picking and sorting costs can add up in the long run. According to the Georgia Institute of Technology, about 63% of a warehouse’s operating costs can trace back to order picking. Combining automated picking and sorting technology can decrease costs and increase efficiency.

Consider the following examples of picking and sorting automation:

    • Collaborative mobile robots: Companies may program these robots, sometimes called “cobots,” to assist warehouse workers, and quickly augment manufacturing and warehouse processes such as assembly, handling of materials, and quality assurance.
  • Automated sortation systems: These systems combine scanners with product handling technology such as conveyor belts. They can be fully or semi-robotic. Certain systems can apply labels, wrap packages, and more. Depending on the items and system, sorting capacity can range from 20 sorts per minute to 833 sorts per minute.
  • Automated picking systems: This category encompasses a range of robotic and semi-robotic systems capable of picking, organizing, routing, and shipping. A high-speed system can accurately pick up to 450 items per minute.
  • Pick-to-light: This automated picking system functions as a guide for human pickers. Pick-to-light uses LEDs and other lights to show exact pick locations. They can reduce overhead costs by minimizing inaccuracies, streamlining the picking process, and reducing cognitive load for workers.
  • Voice picking and voice tasking: Just like the name suggests, these systems use voice recognition to augment the picking process for human workers. Workers come equipped with headsets that relay picking information to them hands-free. Workers can then respond verbally or communicate with the program using scanners.

Warehouse management

Warehouse management systems (WMS) are the heart of an automated warehouse system. For example, robotic systems communicate with these systems as they receive, store, pick, sort, and ship goods within the warehouse. Warehouse management software can also integrate with third-party logistics (3PL) solutions and automate manual processes.

These systems can optimize warehouse storage space, calculate inventory, schedule purchase orders and deliveries, manage product demand fluctuations and returns, and integrate with 3PL.

WMS offer a range of capabilities using automation. Some of the main capabilities of WMS include:

    • Cloud-based inventory management: Cloud-based systems are integral for modern warehouse logistics. Real-time management allows for automated inventory adjustments in response to fluctuating demand and availability. Their cloud-based functionality supports integration with robotic and automated warehouse systems.
  • Reports and forecasting: WMS simplify forecasting by automatically pulling data from all available sources. These systems use automation to compile and aggregate data to streamline reporting and forecasting. You can optimize order fulfillment by using this quick and accurate data pulled in real-time from all warehouse departments.
  • Order management and fulfillment: Automated order management systems can speed up fulfillment, replenishment, purchasing, and sales orders. Using real-time information, the WMS can send POs automatically when inventory reaches a certain volume. Branch transfers can automatically occur as determined by pre-set conditions.
  • Built-in Electronic Data Interchange (EDI): Rather than using a third-party solution, WMS can support built-in EDI. This allows the automation of workflows, including order download, shipping, and the processing of invoices. Manual data entry can also be reduced by rule-based automation.

4 benefits of warehouse automation

Every business should consider how automation can benefit their particular use case. No two businesses are the same, so any automation must be onboarded with deep consideration. The warehousing industry has many pain points that automation can alleviate. Here are a few of those benefits.

1. Real-time visibility

One of the immediate benefits of warehouse automation is real-time inventory visibility. Cloud data supports visibility from warehouse storage to distribution and everything in between. A prime example is e-commerce, where response times and customer satisfaction are key to a successful business.

Knowing exact stock levels at all times allows businesses to:

  • Accurately forecast demand
  • Keep optimal stock levels
  • Make quick decisions
  • Create data-informed strategies
  • Keep customers happy by avoiding stockouts and backorders

2. Reduced cost

Warehouse automation can reduce costs associated with just about every process and procedure. For example, optimizing storage and freeing up floor space creates new revenue opportunities. Up to 80% of basic shelving can be considered wasted space. Automation makes it possible to reduce this waste and recoup those costs. Labor productivity increases as humans work more efficiently alongside their automated counterparts.

Warehouse automation reduces costs by improving:

  • Human labor and manual processes
  • Reporting and forecasting
  • Storage capacity
  • Warehouse scalability

3. Reduced error

Automated systems reduce error significantly in comparison to non-automated systems. Human error is an inevitable factor in manual processes. According to a study by the University of Hawaii, manually updating inventory spreadsheets can lead to error rates as high as 86%.

Automated systems are not prepared to fully automate all aspects of a warehouse. But automation can greatly reduce error in certain areas. For example, automated storage and retrieval systems can increase the accuracy of associated tasks by up to 99.99%.

Overall, warehouse automation can reduce errors by:

  • Minimizing the need for manual input
  • Augmenting manual input with rule-based automation
  • Reducing worker fatigue
  • Supporting proactive decision-making with real-time data

4. Reduced risk of injury

Fatal work injuries in transportation and warehousing are some of the highest in any industry. There were 976 fatal workplace injuries in transportation and warehousing in 2021. Construction was number one, with just 10 more fatalities per year.

A study by the University of Pittsburgh showed that work-related injury rates were reduced due to the introduction of robotics. Other data in the study indicated a 4% decline in “physical job intensity” and a 5% drop in disability. Whether it’s picking or inventory management, automated warehouse systems can reduce manual work requirements and the associated fatigue. Workers can stay focused and avoid injury in a warehouse setting by reducing fatigue and cognitive load.

3 challenges of warehouse automation

With significant benefits come challenges. Many of these challenges occur in the early phases of automating a warehouse. Take stock of which challenges will impact your business the most so you can plan to address them.

Create an implementation committee to oversee the automating project. They can keep stakeholders informed, organize efforts, ensure regulatory compliance, and support a smooth transition toward automation.

We’ve outlined some of the main challenges associated with introducing warehouse automation below.

1. Integration

Integrating any new systems or technologies can be challenging, especially when those systems involve a lot of essential customer data. Furthermore, new technologies require training and a period of adjustment for teams.

For example, a business may want to stick with its enterprise resource planning (ERP) system if it already has a warehouse management system (WMS) feature. This feature may work now, but switching to a dedicated WMS is important for scaling with increasing complexity, and it will have more robust functionality than the ERP system’s WMS feature.

Small and medium-sized businesses can implement an inventory and warehouse management system much cheaper and faster than a traditional ERP. This solution combines inventory management system (IMS) and WMS technology with automation that is built to scale. Integration is important, and choosing an all-in-one solution can save time while reducing startup costs.

There is no simple solution when automating a process that involves many steps. Depending on the complexity of your warehouse automation, it can take 4-12 weeks of onboarding. During this time, your task force must pay close attention and prepare to remediate any issues.

2. Upfront costs

While warehouse automation pays off in the long run, the upfront costs can be significant. Average costs can range from $15,000 to more than $200,000 depending on the size and complexity of your operations. We’ve provided some averages for you to consider regarding your warehouse automation needs:

    • Warehouse management software can cost less than $1,000 a month with a robust WMS system like Cin7 Core.
    • Cobots can cost an average of $35,000 upfront for a single collaborative robot.
  • AS/RS systems have varied costs, ranging from $70,000 for a Vertical Carousel Module and $1.5 million for Robotic Cube Storage.

These solutions can be worth the investment when warehouse labor takes about 65% of most operating budgets. Budgets should plan for all upfront costs, such as the number of users, required peripheral devices, and installation costs.

3. Launch day

Some stress is normal leading up to a new system launch. Did we set it up right? Are there issues we aren’t seeing? Growing pains are common for any business that bravely enters a new territory. Organize your launch days thoroughly to mitigate any issues during this exciting phase.

Remember these best practices:

  • Plan to monitor, test, validate, and potentially abort the launch.
  • Budget for extra resources required during the launch phase.
  • Communicate with vendors and make sure they are available to supervise during the launch process.

Establish automation committees well ahead of launch day. The committee can establish key metrics for validating processes and potentially aborting the launch. A dedicated party can communicate with multiple stakeholders and ensure everybody has the resources they need for a successful launch.

5 warehouse automation trends

The warehouse automation market continues to grow, potentially exceeding $69 billion by 2025. Warehousing is more predictable than other industries, like construction, which makes it a prime environment for automation. Here are some warehouse automation trends we’re seeing right now.

  • Automated guided vehicles: The AGV sector is predicted to reach $9.18 billion by 2030. Autonomous vehicles are restricted now but have the potential to be highway ready in the future.
  • Additive manufacturing: This application of 3D printing creates spare parts (and more) in an industrial setting. The market was valued at $16 billion in 2022 and is predicted to reach $94 billion by 2032.
  • Blockchain: This technology creates a decentralized record of transactions that all partners in a supply chain can access. These digital ledgers can improve visibility, accuracy, and accessibility. The adoption rate for blockchain technology could potentially reach 45% percent by 2030.
  • Internet of Things (IoT): These “things” can relay valuable data that leads to powerful business insights. For example, businesses can use IoT data for predictive maintenance, which reduces breakdowns by 70%.
  • Cloud solutions: The reliability and scalability of cloud technologies show no signs of slowing down. The cloud automation market is predicted to reach $480 billion by 2030.

How do you automate warehouse processes?

Warehouse processes can be easily automated when they are repeatable and somewhat predictable. Warehouse automation technology continues to advance in ways that make it increasingly flexible, adaptable, and scalable. Whether you consider a robotic picking system or a cloud-based order fulfillment solution, it all comes down to your business needs.

A warehouse management system is one of the key components of an automated warehouse. No sophisticated system can rely on manually updated spreadsheets — you need a reliable WMS to connect all your order, inventory, shipping, and accounting workflows.

Take your business to the next level with Cin7 Inventory and Warehouse Management Software solutions.

What is a bill of materials (BOM)? [guide]

A bill of materials (BOM) is an extensive list of raw materials and components required to manufacture or repair a product or service. BOMs are designed in a format that keeps the finished product at the highest level and the other individual components and materials at the bottom.

Ever been halfway through making a pizza and realize you forgot to buy cheese? Or started building a treehouse only to find out you don’t have a hammer?

Believe it or not, manufacturers plan their production process in a similar way. Just like how we jot down all the ingredients we need to make a pizza, manufacturers track everything they need to create a product. But in manufacturing, the stakes are much higher. So, they don’t just rely on iPhone notes. Instead, they use a special, standardized document called a bill of materials.

A bill of materials (BOM) is a list of all the materials and components required to build a finished product. You can think of it like a recipe for a product that lists all the needed ingredients and their quantities.

A well-structured BOM can help companies in various ways, including:

Creating a BOM is the first step in getting a product into production. Without a BOM, it can be difficult to track profits, communicate with the shop floor, or ensure that the right materials are on hand when needed. Taking the time to create a well-structured BOM can improve your efficiency, reduce costs, and ensure that your products get built to the highest standards.

Stay with us as we explore the different types of BOMs, how to make a BOM, and the essential information to include in them.

Key Takeaways:

  • A bill of materials (BOM) encompasses all the materials, components, and information necessary to assemble a product.
  • There are multiple types of BOMs, including manufacturing BOMs, engineering BOMs, sales BOMs, production BOMs, and configurable BOMs.
  • BOMs are typically displayed in either a single-level view or a multi-level view.
  • There are some universal elements you should include in every BOM, like part number, part name, raw materials, quantity, and more.

Types of BOM

Different departments utilize various types of BOMs, each focusing on their specific needs. These BOM types include:

1. Manufacturing bill of materials

A manufacturing bill of materials (MBOM) is a structured list of all parts or items needed to create a complete product. All teams involved in the order cycle will receive the information to ensure all the correct people have visibility into the process.

2. Engineering bill of materials

An engineering bill of materials (EBOM) includes parts designed by the engineering department, typically involving a mechanical or technical drawing of the finished good. It’s common for a product to have multiple EBOMs due to necessary design modifications.

3. Sales bill of materials

A sales bill of materials (SBOM) outlines the product in the sales stage and details each product before its assembly. In this context, the finished product is considered a sales item, not an inventory item.

4. Production bill of materials

A production bill of materials (PBOM) serves as a guide for the components comprising a product. It lists the necessary components and makes adjustments throughout the production process as components become finished products.

5. Configurable bill of materials

A configurable bill of materials (cBOM) is used for products that need specific customer adaptations, such as unique shipping and packaging requirements.

BOM structures

There are two main ways you can present and structure a BOM, and the method you use will likely depend on the complexity of your product. The two structures are:

Single-level bill of materials

Simpler products with fewer parts and straightforward assembly will often require a single-level bill of materials. It’s not favored for complex products due to its inability to clearly define relationships between parent and child parts or between assemblies and sub-assemblies.

Consequently, if production issues occur, this BOM type lacks the specificity to pinpoint the origin of the problems.

Multi-level bill of materials

While a multi-level bill of materials requires more time to create than a single-level BOM, it provides superior detail and reliability regarding the product’s parent and child parts. Moreover, multi-level BOMs depict the full relationship between these parts.

As this BOM encapsulates all product-related aspects, its utility extends beyond manufacturing. It can also enhance engineering, design, sales orders, and material management processes.

How to make a bill of materials

After identifying the BOM structure you’ll use, you’re now ready to begin crafting your own. Developing a BOM is a strategic endeavor that needs careful planning to avoid future hiccups. Here are the steps you should take when making your BOM:

1. Decide what you need to include

First, outline what your BOM should include. While it might seem evident, detailing every item — even seemingly unimportant ones — is vital. This avoids any potential omissions during later stages.

2. Collect and assemble information

Assembling the necessary information for your BOM is easier said than done. Therefore, you must find a way to centralize the data. Comprehensive inventory tracking software is the best way to unify information in a single platform.

3. Select editors

To ensure BOM accuracy as items change during production, limit BOM editing to a select few within your organization. Modifications will likely need to be made to the BOM during the production process, so it’s better to only let a select few dictate these changes.

4. Choose a BOM structure

Next, choose your display method—single-level or multi-level. For simpler products, a single-level BOM suffices. For more intricate items, consider a multi-level BOM.

For instance, a bike might seem composed only of wheels, a frame, handlebars, and a seat. However, multiple components go into making frames and wheels—spokes, tubing, etc. — which also need tracking.

5. Create the BOM

With all BOM specifics decided, it’s time to create it. Certain information always requires inclusion, regardless of the product. We’ll dive further into these essential details next.

What does a bill of materials include?

The BOM works to ensure the product is built correctly, so you should always include the following pieces of product data in the BOM record:

 

  • BOM Level: This is the rank or number for all your parts. The BOM level keeps tabs on every part of your BOM, whether single- or multi-level.
  • Part Number: This is the unique part number assigned to each item, making it easy to reference and track all parts.
  • Part name: This is the unique name of all the parts in the product.
  • Raw materials: This specifies the precise quality or raw material type required for the manufacturing process.
  • Part description: A detailed description of each part helps distinguish between similar parts.
  • Quantity: The number of parts utilized in each assembly or subassembly must be documented to direct purchasing and manufacturing activities.
  • Unit of measurement: This illustrates what unit the part will be measured in.
  • Procurement type: Document each part you purchase or make (i.e., off-the-shelf or made-to-specification) to develop efficiencies in planning, manufacturing, and procurement activities.
  • Reference designators: In case your product includes printed circuit board assemblies (PCBAs), incorporating reference designators within your BOM is critical to illustrate where the part fits on the board.
  • Relevant notes: Ensure that additional relevant notes are captured to keep all parties who interact with your BOM informed. Accurate documentation within the BOM aims to save time and prevent confusion in the future.

Tips for creating an impactful BOM

A BOM’s efficiency relies on more than the sum of its parts. Regardless of its complexities and what it includes, the following four principles lay the foundation for creating an efficient BOM.

1. Tailor your BOM to project needs

Before creating a BOM, discern the vital details and design the BOM to meet these specifications. Tailor your BOM to suit the unique demands of the project or build.

2. Include enough detail

Include comprehensive information to ensure your BOM is as precise, accurate, and as detailed as possible. Although some details may seem redundant, there’s a general guideline to follow:, The more detail, the better.

3. Double-check for accuracy

Before uploading or forwarding your BOM, verify that it contains all necessary information and that the data is correct. Small errors can have significant repercussions, hence the need to double-check the details and ensure their accuracy.

H3: 4. Limit access

Restrict the number of individuals who can edit the BOM. While other members of the organization can access and utilize the BOM, prevent them from making modifications. This safeguard helps mitigate potential human error.

 

Frequently asked questions (FAQ)

Still wondering about what a BOM is and how to create your own? Look no further. Here are some of the most common questions and answers about BOMs and the process of creating one.

What is the meaning of a bill of materials?

A bill of materials is an exhaustive list of materials required to produce a product, along with any additional instructions and information pertinent to the production process.

What is a bill of materials example?

Consider a pizzeria tasked with making 100 pizzas. The BOM would encompass everything required to make the pizzas, such as dough, pizza sauce, and cheese, as well as resources for cooking the pizzas, like pans and ovens. A multi-level BOM would go even further to include child ingredients, like the water, flour, and yeast that are used to create the dough.

Does a bill of materials include prices?

A BOM typically includes the price of each material or component.

Does a bill of materials include labor?

A BOM typically does not include labor. Rather, the BOM includes components, parts, and prices. Labor is reported separately.

 

What is the purpose of a bill of materials?

BOMs are essential tools in eliminating problems in a company that runs lean and continuous improvement processes. They help reduce errors like ordering the wrong part, wrong quantities, or similar issues that lead to costly downtime and production delays.

By automating your BOM with an inventory management solution, you can get up-to-date demand forecasting and the ability to modify the list easily. This will prepare you for anything that arises during the manufacturing process.

Create BOMs with ease with Cin7.

A woman in an orange vest works on an iPad while standing in a warehouse.

What is manufacturing lead time & how can you reduce it?

Manufacturing lead time is the time it takes to manufacture a product and then deliver it to a customer. In a nutshell, it reflects how long the customer needs to wait to receive what they ordered.

We all know the excitement of waiting for a package to arrive — and the confusion and disappointment when a delivery gets delayed.

Customers remember brands that deliver their products quickly. If an order takes weeks to arrive, customers will likely think twice before ordering from that company again. Brands that prioritize quick order fulfillment build trust and reliability with their customers.

Manufacturing lead time refers to the time between when the production of a product is scheduled and when it’s completed — it’s a major factor in driving consumer trust and happiness.

If you’re outsourcing products, much of the lead time is out of your control since you’re relying on the supply chain. However, as a business owner, there are actions you can take to mitigate supply chain issues and reduce manufacturing lead time.

In this post, we’ll explore the different factors that impact manufacturing lead time and provide tips on how to reduce it.

Key Takeaways:

  • Lead time begins when a customer places an order, whereas cycle time starts once work begins on a product.
  • Calculate manufacturing lead time by adding preprocessing time + processing time + post-processing time.
  • Numerous factors impact manufacturing lead time, such as stockouts, lead time variability, delays in shipping, and more.
  • Automating your inventory management process is a great way to reduce lead times and get products delivered quicker.

Types of lead time 

In the manufacturing process, there are four primary types of lead time that relate to the process as a whole. These include:

  • Customer lead time: The time it takes for a customer to receive an order after they place it.
  • Material lead time: The time it takes for a company to receive raw materials after becoming aware that they need them.
  • Production lead time: The time it takes for a company to manufacture a product after receiving its materials.

All of these lead times work in tandem to determine the total lead time required to manufacture and deliver the product.

Lead time vs. cycle time

Lead time and cycle time are commonly confused, but you can distinguish them by looking at the timeline for an order.

While lead time begins when a customer places an order, cycle time doesn’t begin until work actually begins on the product. So while lead time includes both purchase processing and the actual manufacturing, cycle time only refers to the process once manufacturing begins.

How to calculate manufacturing lead time

To reduce manufacturing lead time, you have to know what your baseline is. Luckily, you can easily calculate manufacturing lead time so you can make a plan to reduce it.

The formula for calculating manufacturing lead time is:

The formula to find manufacturing lead time is preprocessing plus processing plus post-processing.

While this calculation may appear simple, it’s important to know exactly what each term refers to before crunching the numbers. Here’s what each element means:

 

  • Pre-processing: The time it takes for a company to process a customer order, obtain supplies, and prepare the supplies for production.
  • Processing: The time it takes to produce the order (this is the same as cycle time).
  • Post-processing: The time it takes to deliver the product to the consumer.

Adding these elements together paints a full picture of the manufacturing process — and the timelines for each step. It’s important to break the equation down into these three timelines so you know which step to prioritize first when optimizing your lead time.

What impacts manufacturing lead time? 

Knowing how to calculate and reduce manufacturing lead time is significant because of the sheer amount of factors that can add to or increase lead time. The factors that impact manufacturing lead time include but are not limited to:

Six factors that impact manufacturing lead time.

1. Stockouts  

Just as a vehicle cannot run without fuel, a manufacturer cannot fulfill orders without raw materials. Stockouts can be catastrophic for manufacturers as they bring production to a halt. This delay in production can:

  • Increase lead time.
  • Add to customer dissatisfaction.
  • Reduce sales.
  • Incentivize customers to buy from competitors.

With the right inventory management software, you can set reorder points so the system will automatically place orders with suppliers when raw materials fall below a certain preset level, ensuring that you do not face stockouts.

Learn how Cin7 inventory management solutions solves this problem and more with a live demo.

2. Lead time variability 

Just as stockouts can lead to an increase in manufacturing lead time, the same can happen with suppliers. Stockouts and supply chain issues with suppliers can increase their lead time, leading to an increase in yours.

Dealing with multiple suppliers can make predicting when all required items will be delivered difficult, resulting in overstocking or understocking. Ordering excess inventory can strain your budget while understocking can lead to a loss in potential sales. All of this makes it challenging to execute production smoothly.

You can address this issue by consolidating suppliers to ensure that everything you need arrives simultaneously, allowing for smooth production runs and lower shipping costs.

3. Amount of testing required 

If you plan to go skydiving, you expect the parachute to be well-tested and of supreme quality, right? After all, your life depends upon it.

For items like parachutes, extensive testing is essential, and more testing requires more time. The production part approval process (PPAP) determines the time to complete processing. In manufacturing, you need to check the individual quality of the products and ensure the parts work as desired once combined.

The number of tests — and the number of parts you must test — all affect lead time.

4. Delays in shipping 

Shipping is the act of carrying items from one place to another. A number of factors can affect shipping time, including natural disasters, human error, and component shortages. Out of all the issues discussed so far, this one is the most unpredictable and challenging to control.

Businesses can mitigate the risk of shipping delays by sourcing suppliers located nearby. Otherwise, you can choose a supplier who constantly keeps inventory stocked by monitoring their levels. There’s a general rule of thumb: Fewer incoming shipments lead to a lower risk of order fulfillment delays.

5. Inefficient inventory control 

Inefficient inventory control can adversely affect the lead time of your manufacturing unit. Inefficiencies increase inventory management costs, raise stock handling charges, and generally slow the production process. Unlike delays in shipping and lead time variability of suppliers, inventory control is entirely in your control.

Implementing proper inventory control can help you determine how much inventory you currently hold, ensuring that you have all the necessary components to run manufacturing smoothly.

6. Market demand 

In 2017, the demand for fidget spinners was soaring high. It is estimated that 50 million fidget spinners were sold in the first half of 2017 alone. But today, hardly anyone talks about them.

This case proves that you cannot perfectly predict customer demand. If something is highly sought after today, it does not necessarily mean that it would be relevant tomorrow. Improper demand planning in such scenarios can lead to losses.

Market demand can also affect the lead time. If there is a spike in demand for your product, your suppliers could likely face high demand as well. A delay from suppliers can increase order fulfillment time and increase your lead time.

How to reduce manufacturing lead time 

Reducing lead time can make for happier customers and build compounding trust. As a result, it’s paramount to know how to combat supply chain disruptions and ensure you’re optimizing manufacturing lead time. Some methods include:

Five ways you can reduce manufacturing lead time.

1. Keep safety stock

If you don’t use just-in-time inventory, then keeping safety stock is a great buffer in case supply chain disruptions arise. Safety stock is inventory that a company sets aside to avoid a stockout.

In industries where it’s impractical to keep excess stock on hand, consider setting reorder points, which is the level at which stock needs to be replenished. If you use inventory management software, you can set custom reorder points so stock will automatically reorder when it reaches a specific level.

2. Order in smaller quantities 

Ordering smaller amounts more frequently allows you to fulfill orders quicker than if you placed larger bulk orders.

By breaking up invoices into smaller quantities, you can quickly dispatch orders and reduce your manufacturing lead time. Although you may receive supplier discounts by ordering in bulk, it is often more efficient to order smaller quantities.

3. Put lead time in your contract 

If you’re expecting your supplier to send your products within a certain time,  put it in writing. When delays happen and you’re unable to fulfill orders on time, it can be a major detriment to your business.

Your contract with your supplier should clearly state the expectations for timing and the penalties for late shipments. Without a clear line of communication or set expectations, delays can easily occur.

4. Streamline your process 

If you’re looking for ways to reduce manufacturing lead time, it may be helpful to first examine your own processes and the steps you can condense or eliminate.

Some ways you can streamline your processes may include:

  • Completing tasks in parallel
  • Eliminating repetitive QA processes
  • Automating your sales orders

5. Automate your inventory management system 

Automating your inventory management eliminates the chance of manual error in your process and, in turn, reduces the chances of delays and setbacks in your manufacturing process.

While spreadsheets can accomplish a lot, automated inventory management can alert you when inventory is low, automate vendor management processes, create purchase orders and shipping labels, and more. Automating all these elements of the production process can help your business run as smoothly as possible.

Request a demo of Cin7 Core to see automated inventory management in action. 

What are the benefits of reducing manufacturing lead time? 

Getting products to consumers on time leads to happier customers, but businesses have more on the line than just retaining customers when it comes to lead time. Here are a few other benefits that come when you reduce manufacturing lead time:

1. Prevents against dead stock 

Dead stock, or inventory that gets manufactured but goes unsold, can occur if businesses can’t sell their products to customers in a timely manner. Reducing manufacturing lead time fights against excess inventory that can often be very costly to a business.

2. Makes for greater output  

If you can get orders to customers quicker, you’ll be able to field more orders and generate more sales. Reducing manufacturing lead time can increase profits as it enhances the number of orders a company can handle.

3. Creates a more efficient use of capital 

The longer capital is tied up in raw materials and production, the longer a business has to wait to generate a profit from its sale. By reducing manufacturing lead time and enhancing orders and sales numbers, companies can gain profits faster — thus allowing them quicker growth.

4. Builds trust and satisfaction

Customers are more likely to trust and return to a business that will always have products in stock and will deliver quickly. Companies that shorten manufacturing lead times reap the benefits of happy customers and have an easier time gaining new business.

Why are manufacturing lead times so long? 

Factors inside and outside of your control can prolong manufacturing lead times. Consider the last three years for instance, when lead times extended due to external factors — like COVID-19, global conflict, and inflation.

However, internal errors can prolong manufacturing lead times as a result of errors by companies, from misuse of material to insufficient labor or an inability to transfer finished goods to warehouses for distribution.

Getting products out on time requires many different departments to move in sync, and it can be difficult to keep track of. Inventory management software simplifies this by keeping processes in a centralized space, and automating most of them, so you can always keep a pulse of the manufacturing process.

Looking to reduce lead times and gain customers? An inventory management software solution can help. Start a free trial of Cin7 Core to see how we can help.