With the ubiquity of manufacturing software systems at your disposal, your business has access to more data than ever before. This data access provides manufacturing businesses with more tools to improve business management and cost-effectiveness, starting with inventory lot size.
Inventory lot size refers to the number of products a manufacturer can produce before changing the equipment over to another product, and usually refers to discrete products rather than components (chemicals, pharmaceuticals, or metals).
Improving your inventory lot size calculations can help you reduce costs and enhance net profits. It also allows you to use your plant more efficiently by better managing changeovers and clean up, set up, and startup costs and timelines. But, optimizing inventory lot size is a challenge. Fortunately, meeting this challenge with manufacturing software systems and ERP data can improve your ability to manage all aspects of your business.
Finding Your Ideal Inventory Lot Size
The trick for optimal inventory lot size is to find the sweet spot among three variables:
- Customer service: The best lot size optimization methods include the customer's needs first. This is important for several reasons. First, if the customer isn't satisfied, they may cancel, take business elsewhere, or leave negative reviews. The best inventory optimization in the world cannot make up for dissatisfied customers and lost sales.
- Changeover costs: Next comes changeover costs, which vary according to the manufacturing plant, the size of the operation, the equipment, personnel variables, and more. Each job requires estimation and a thorough understanding of the costs involved.
- Inventory costs: Lastly, the inventory costs should be factored into the mix. This includes not just the cost of production but the cost to warehouse, manage, and store inventory. For some products, this cost is minimal and fixed. For others, such as products that must be kept at constant temperatures, chilled, or otherwise handled with special instructions, the costs may vary.
Flexible ERP Reporting Helps Calculate Inventory Lot Size
A manufacturing ERP software system that provides flexible reports and customizable dashboards offers a handy tool to the manufacturers concerned with inventory lot size optimization. Such flexibility enables you to adopt any of the inventory estimate methods to your needs. It provides data you can use quickly or include in your calculations as you work on changeover requirements and estimation.
Let’s take an example of how one manufacturer used ERP data to help with inventory lot size calculations. This manufacturer makes chemicals for a wide range of industries. The high-mix specialty chemicals require changeups with more extended cleanup and set up than other sectors.
The manufacturer took the following steps to calculate inventory lot size:
- Gathered data from the ERP, including the time to manufacture similar materials in the past, inventory on hand for the order, and supply chain information
- Assessed using historical data clean up and setup times
- Performed lot size analysis, determining when the customer needed the order and using that information to inform a judgment on the final lot size analysis
- Entered the resulting data back into the ERP system to assist with calculations and scheduling
- Ran the order
- Assessed data from the results
- Asked the customer some questions relating to order satisfaction, quality, and time to delivery
- Inputted the results into the ERP
- Provided team with report and results
- Used the information to improve performance for the next product run
The resulting improvements not only helped orders ship more quickly, but they saved costs, too. By calculating requirements, measuring incremental improvements, and implementing improvements over time, this manufacturer shaved costs off each order. The results boosted net profits while improving customer satisfaction, the formula for any successful business.
Optimizing any process is a circular endeavor. Data informs the initial decision making, with actions taken to use the data and monitor the results. Results then inform the next run of the process to improve and implement changes based on quantifiable improvements, continually.
Manufacturing ERP Software Systems: A Manufacturer’s Friend
Manufacturing software systems offer many of the advantages discussed here related to inventory lot size calculations and ERP systems. Getting the right software system in place starts by having the right partner in place. With nearly twenty years’ experience serving manufacturing organizations in the Chicago area, PositiveVision can help you close the gap between where you are and where you need to be with your manufacturing software systems. Improve your inventory lot sizes and so much more with the right software from PositiveVision. Talk to one of our experts today.