Understanding Inventory in Manufacturing: From Valuation to KPIs

Inventory involved in manufacturing is not just material sitting in the warehouse, but rather working capital in motion.

Each item, whether in stock or not, such as raw materials or finished goods, influences the flow of the production system, the cost of latent capacity, and delivery to customers.

So, manage inventory well and maintain lean operations with on-time deliveries, ensuring minimum enough working capital deployment; this will make the process more profitable.

Inventory Levels and Stages

Manufacturers control inventory at different stages of the production lifecycle:

1. Raw Material (RM): Inputs are materials, such as Steel Blocks, Pipes, MS sSheets, Plastic Granules, other componentsitems, or chemicals, to be used as inputs in production.
   
   
   
2. Work-in-Progress (WIP): Semi-finished items, which include goods that are still undergoing further processing, such as cutting, welding, and assembly.

    

3. Finished Goods (FG): Finished goods are fully processed and ready for dispatch to customers or for sale.

    

4. Sub-stocks: Other categories like rejected material, inventory in transit, subcontracted items, or maintenance spares.
   

Higher visibility of inventory at all levels helps deliver a smoother production process and more accurate planning.

Read more about our guide on how to determine safety stock

Inventory Valuation Methods

Next, inventory valuation describes how your inventory is valued in your books and how it may affect profitability. Common methods include:

• FIFO (first in, first out): Sells the oldest stock first—a great option when prices are going up.
  
  
• LIFO (last in, first out): Sells the newest stock first—often a good option in inflationary times.
  
  
• Weighted Average: Costs are distributed evenly for a consistent valuation.
  
  
• Standard Cost: Assign a particular cost to valued or customized inventory.
  

With ManufApp, all transactions—both when receiving stock and using it—are automatically logged to keep your valuation accurate and precise, and tracked consistently in your books.

Explore how to forecast effectively in our sales forecasting guide

Inventory Aging

Inventory aging reports how long materials stay unused. It is a fast and straightforward way to highlight slow-moving or obsolete stock. Typical levels include:

• 0-30 days: Fast-moving
• 31-90 days: Moderate movement
• 90+ days: Slow-moving or stock that has sat.
  

ManufApp will automate this process for you through batch tracking and will notify you of items like “2 Lots Expiring in 30 Days,” so the team can take action before they expire and reduce wastage.

Inventory Verification

Once accounted for and aged, inventory verification compares the physical count with the inventory records in the system. Most manufacturers will conduct:

• Cycle Counts: Systematic review of selected inventories.
• Complete or Surprise Audits: Either once per year or random audits need to be done.
• Barcode/QR Scanning: A quick, paperless verification process.

Using ManufApp’s mobile verification form capabilities allows your teams to verify inventory on the shop floor, improve accuracy, and reduce verification time and effort.

The Impact of Inventory on Working Capital

Inventories directly impact working capital status because unused inventories tie up cash and increase the costs of holding inventories. If you stock too little, you will risk production delays or late orders.

ManufApp will facilitate the ongoing changes needed to get to balance and maintain working capital with the proper real-time MRP, reorder alerts for low inventories on hand, and tracking of consumption without limiting available inventory.

Explore our article on building a smart purchase plan

Important Inventory Key Performance Indicators (KPIs) to Track

Manufacturers should track the following key inventory KPIs to determine efficiency and identify changes:

1. Inventory Turnover Ratio: This indicates the time it takes for inventory to be used or sold. A higher turnover rate indicates practical inventory usage.

    

2. Days of Inventory (DOI): This refers to the duration materials remain in stock before being used. Fewer days suggest more efficient operations.

    

3. Stock Accuracy: This compares physical stock to the system to ensure data accuracy in inventory.

    

4. Slow Moving Items (%): Identifies materials that have not moved in a pre-defined period, and which may mean you are over-indexed or have inefficiencies, i.e., an under-performing item.

    

5. Stock Out Rate: The frequency at which stock is depleted during a reporting period indicates the accuracy of your inventory planning.

    

6. Inventory Carrying Cost: The total cost of keeping the stock, which can highlight potential savings.

 Check out our top 10 KPIs in planning and scheduling

Conclusion

In conclusion, inventory management connects production efficiency with financial success.

By seeing real-time stock levels through stock valuation, aging, and KPIs, manufacturers can reduce waste, improve cash flow, and ensure on-time delivery.

ManufApp provides all of these components through intelligent stock valuation, automated expiry notifications, live tracking of stock, and visual KPI dashboards, enabling inventory to become a key competitive advantage.

Take Control of Your Inventory Now

See for yourself why leading manufacturers are more effective with stock management with ManufApp’s intelligent inventory system — including real-time visibility, auto-tracking, and actionable insight.

Book a Free Demo and take control of your inventory today.