Manufacturing 2/4/2025 Goal of inventory management Inventory control in manufacturing includes reducing costs, monitoring stock levels, and tracking the timely availability of materials. The goal is reducing costs associated with holding and managing inventory while finding the right balance between carrying enough inventory to meet demand and avoiding excessive inventory tying up capital. Effective inventory control confirms necessary materials and components are readily available when needed. By meeting the key objectives of inventory control, manufacturing companies can enhance operational efficiency, reduce costs, improve customer satisfaction, and gain a competitive edge in the market. Challenges over time Many manufacturing companies carry numerous SKUs to satisfy client needs. SKU count grows and grows as new customers and products are added. Over time, companies may see revenue increasing, but cash flow unexplainably getting tighter. Inventory control can become costly for manufacturers’ cash flow if not properly monitored. The ABCs of inventory One concept we use with clients is ABC analysis, a tool used in inventory control to categorize and prioritize inventory items based on their value and usage, following the 80/20 rule. We assess the value and usage of inventory to categorize items into A – highest value and fastest usage, B – moderate value and usage, and C – lowest value and slowest usage. Manufacturing client case study We worked with a manufacturer who had a philosophy you can’t sell out of an empty wagon. He wanted to keep high levels of inventory to satisfy clients and potential clients. But he could not understand why when his inventory was increasing, he was tying up working capital and yet he would run out of his fastest moving inventory. Because of this, cash flow became so tight, he might need to contribute more capital, just to make payroll. The ROI of ABC Working with CLA, we introduced ABC inventory management and did data analysis to identify the inventory usage. Of the over 2,500 SKUs, we identified the 20% of finished goods that generated 80% of their gross profit and categorized them as A inventory and helped the client implement controls. We also identified the C category inventory items and recommended discounting the excess items to reduce carrying costs. We were able to right size the inventory , which helped the client have the inventory available for sale, increasing revenue, increasing cash flow, and ultimately increasing the net operating profit and helped repurpose a fulltime employee. ABC roadmap CLA recommends monitoring and evaluating A category inventory weekly and keeping it accessible to maintain high turnover. B category inventory would be monitored less frequently, say monthly, with more moderate inventory levels. C category inventory items are managed with leaner inventory levels. Ready to read your ABCs? To help manufacturing operations run at peak efficiency and improve inventory management, we invite you to reach out for a consultation. CLA’s team of manufacturing professionals can help you implement effective inventory control strategies tailored to your specific needs. Contact us today to schedule a meeting and take the first step towards enhancing your operational efficiency and boosting profitability. This blog contains general information and does not constitute the rendering of legal, accounting, investment, tax, or other professional services. Consult with your advisors regarding the applicability of this content to your specific circumstances. © 2026 CliftonLarsonAllen. All rights reserved. "CliftonLarsonAllen" and "CLA" refer to CliftonLarsonAllen LLP. Securities and investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor, member FINRA/SIPC. 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