Why Inventory Software Isn’t Enough for Manufacturers

Inventory management software seems like the obvious solution for improving stock control and visibility. But in manufacturing, an accurate stock count doesn’t necessarily mean you can actually make and deliver an order on time.

Key takeaways

• Accurate stock counts don’t guarantee availability. Inventory software can show a technically correct number and still miss what’s reserved, held for inspection, or already consumed but not yet logged. 
• Manufacturers don’t just track stock. Manufacturers turn raw materials into finished products through multiple stages. Basic inventory tools track quantity, not the process stock goes through to become something else.
• Disconnected tools make coordination difficult. When production, purchasing, and sales each work from separate systems, a schedule change or reservation can go unnoticed by everyone but the department that made it.
• Having materials in stock doesn’t mean you have the capacity to use them. Inventory software tracks materials, not machine time, labor availability, or floor space. An order can look fully stocked and still stall because the equipment or trained staff to run it isn’t available.
• A manufacturing ERP connects inventory to the rest of the business. It connects inventory data with production schedules, purchasing, and sales orders in one system. This lets departments check real-time information (like material availability, capacity, and lead times) before making decisions that affect other parts of the business.

What inventory management software actually tracks

Inventory management software (IMS) is designed to track inventory changes in real-time. Whenever stock is received, transferred to another location, or sold, the change is recorded in the software and stock levels are updated automatically. Inventory management software is designed to answer key questions like:

• Which items do we have in stock?
• How much do we have in stock?
• Where is stock located?
• When should we reorder?

When every stock movement is logged, inventory management software can provide an accurate, up-to-date view of inventory levels. Nobody has to do manual stock counts to know what’s on hand, and automatic alerts flag low inventory before stockouts occur. When used appropriately, basic inventory management software can bring real benefits. 

For example, consider a retailer that buys running shoes from multiple suppliers, stores them across different warehouses, and sells them online and in-store. 

Inventory management software can show how many pairs of each size are on the shelf, where they’re sitting, and when it’s time to place a new order. This keeps the business from stocking out of popular sizes and overstocking on styles that don’t sell.

Why manufacturers need more than a stock count

Many small manufacturing companies start out using inventory management systems. However, as a business grows, more orders start coming in, and production becomes more complex, it becomes harder to track inventory using these basic systems. 

This is because manufacturers don’t just buy, store, and sell stock; they transform it. They turn raw materials into finished products, all through a process inventory software was never built to track.

For example, consider a metal fabricator using inventory management software. A basic inventory system might show 200 sheets of steel plate on hand, which seems like more than enough to start a new order. What the software doesn’t show is that 130 sheets are already committed to a job currently in production, and another 25 are on hold for quality inspection. 

The initial stock count is technically accurate, but it doesn’t provide enough information to help the manufacturer understand if they can actually fulfill the order.

What inventory management software misses

Inventory management software often doesn’t provide enough context for manufacturers. The following table gives examples of what an IMS shows and what information is missing for manufacturers.

Limitations of using inventory software in manufacturing

Lack of coordination between departments

For manufacturers, inventory moves across many different departments and production stages. It’s counted, reserved for jobs, consumed, and reordered. 

Inventory management software has no way to connect all of this. Every department works from its own version of the truth, which inevitably leads to poor coordination between teams.

For example, consider a furniture manufacturer that receives an order for 200 dining tables, due in three weeks. Their inventory management software shows enough raw steel tubing on hand to make the table legs, so the order goes through.

However, the software doesn’t show that to fit the new job in, production needs to shift the schedule and push back another job by four days. Purchasing isn’t looped in on the change, so they don’t find out until the following week. By then, they’ve already run their regular reorder check, seen enough tubing on hand, and skipped placing a new order.

In this case, each team was working from a tool that looked accurate on its own. But none of them could see that their information no longer matched the reality on the shop floor.

This kind of breakdown is common when departments rely on inventory management software to track inventory, and other tools to manage sales, purchasing, and production. In fact, 37% of SMBs report multiple disconnected tools as a major operational challenge.

Costs become difficult to track 

Inventory management software can show you basic unit costs. But it can’t tell you what a unit actually costs to produce, because it doesn’t track things like labor, machine time, scrap, and rework. RTO Lighting ran into this exact issue:

“We had started using a stock management system, but realized that it doesn’t track time in manufacturing or labor. As a manufacturer, we needed to capture time as an expense, to quote lead times, and to know our costs more accurately,” says Robert Ogden, Founder of RTO Lighting.

With basic inventory management software, unit costs are usually just a purchase price or a standard cost that’s entered manually. They don’t change when a job needs more labor than expected, hits a machine breakdown, or generates more scrap than usual. The same static number gets applied to every order, regardless of actual production costs.

This limitation is crucial in manufacturing, because if you don’t know what a product actually costs to make, you can’t reliably know which orders are profitable or how to price products.

Production capacity gets overlooked

Basic inventory management software doesn’t tie stock levels to capacity planning. It doesn’t show you if you have the machine time, labor hours, or floor space to convert materials into finished products. So even if you have all the components needed to make a product, you can’t get a reliable view of whether you can actually fulfill the order.

This can lead you to promise orders you can’t deliver on time, which means absorbing costs like overtime, pushing back other runs to make room for an order, or paying a co-packer to complete the job. It can also mean turning down work you could have actually taken on.

For example, Light Composites, a manufacturer of carbon composite components, had no way to see machine time, labor hours, or workstation availability alongside its inventory. It wasn’t until the company adopted a manufacturing ERP system that it could uncover capacity that had been sitting there unused all along.

“We’ve been using MRPeasy for two years, and we’ve seen the benefits. But right now, we’re also realizing some significant capacity gains that were kind of hidden because we just couldn’t see them,” says Andy Hosmer, General Manager at Light Composites.

No visibility into future demand

Inventory software can tell you what’s in stock right now, but it has no way to anticipate what a future order or production run will need. It reacts to shortages once they’re already happening, rather than forecasting them in advance.

CDI, a manufacturer of sailing equipment, ran into this exact problem. For years, the company relied on a basic inventory system that tracked stock accurately but offered no way to forecast demand or estimate lead times. 

This was costly for products like furlers, since each one is assembled from dozens of components. The system couldn’t cascade demand through a bill of materials, lacked automatic reorder alerts, and provided no way to anticipate shortages.

“Each furler consists of about 50 parts, many with long lead times. A shortage of even one component can halt production for the entire line,” explains co-owner David Blumhorst. “We didn’t notice that we needed one particular part and ordered it too late. By the start of the season, it hadn’t arrived. That cost us the whole season of sales for that particular furler.”

To solve this problem, CDI now has an MRP system that connects a bill of materials (BOM) to real demand. Instead of waiting for a part to run low, the new system allows them to forecast demand from upcoming sales orders through the BOM. The system calculates what each order will require and checks it against vendor lead times. If a part won’t arrive in time, that gap shows up as soon as the order is planned.

Moving beyond inventory management software

If you’re a small manufacturer with a handful of products and a short list of jobs, basic inventory management software might be all you need to manage stock. For example, if one or two people can hold the whole operation in their heads, they’ll usually catch a scheduling conflict or a reservation before it becomes a real problem.

However, most manufacturers outgrow inventory management software as they scale. Things like growing SKUs, multiple concurrent jobs, and more employees making decisions independently all make operations more complex. Without a single source of truth connecting departments, the chances are higher that someone will act on the wrong information.

A manufacturing ERP addresses this by connecting inventory to the rest of the business. This gives each department access to the information they need to make informed decisions. For example:

• Sales teams can check current inventory and production capacity, so they know whether an order can actually be fulfilled before promising a delivery date. 
• Purchasing can see upcoming production orders, so a shortage shows up weeks in advance instead of the day it happens. 
• Production planners can see material availability alongside the schedule, so jobs aren’t planned around stock that’s already reserved for something else.

When every department uses the same system, can see stock changes in real-time, and can see how information from other departments impacts their own tasks, your entire operation runs more smoothly. Orders are less likely to slip, shortages are less likely to surface as a crisis on the shop floor, and unit costs reflect actual production. 

Frequently asked questions (FAQs)

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