How inventory management helps fabricated metals manufacturers stay ahead of the competition during a challenging economy

Opinions expressed in this article are those of the author.

Rob Stummer, Asia Pacific CEO of Syspro
Article by Rob Stummer, Asia Pacific CEO of Syspro

The Australian fabricated metal manufacturing industry has experienced subdued revenue growth over the past five years, despite a contraction of product sales to key building markets following the pandemic, according to this July 2022 report from IBIS World.

The report also states that imports of fabricated metal products will account for 62.6 per cent of domestic demand in 2022-23. This shows that there are opportunities for local manufacturers to satisfy the demand from Australian customers, taking the business out of the hands of their Asian competitors.

The economic ripples of the pandemic were both immediate and seemingly long-term for metals manufacturers. What began as consumer isolation moved into factory closures and supply chain issues and evolved into severe inflation. If that wasn’t enough, the challenging labour market has further compounded the issue. However, the single biggest issue for the industry has been the rising price of raw materials due to scarcity, which has severely impacted profitability, and the resulting higher prices have slowed demand. 

The current economic challenge fabricated metal manufacturers face is that they will need to be more competitive as demand weakens to win business from their Asian competitors. Raw materials and inventory are the lifeblood of the metals manufacturing industry and are one of the hardest elements to manage in poor economic situations. This is the prime time for them to focus on balancing their input, output, supply chain and stock, which is a highly complex process to master manually.

Businesses that develop methods for proper inventory management to enable visibility, efficiency and foresight can ensure that they can change their output easily. Making this system one that automates and integrates supply chain, production and inventory to match market demand can help metals manufacturers thrive during economic downturns with a strong market and powerful operational capabilities.

The weight of inventory

Inventory is expensive in resources and consumption and essential for a metal manufacturing business’s output. So, the objective of every manufacturer should be to strike the right balance of fulfilling demand without overspending on carrying costs and tying up valuable resources.

But this balance is not easy to achieve and is much harder to maintain. It varies from one product to another, is affected by the vitality of supply chains, and is dictated by demand. Most of these variances can be determined and continuously improved internally as each business develops better processes, relationships with suppliers, and an understanding of the importance of managing inventory in this industry.

While efficient inventory oversight represents a possible weakness for companies in the industry, it also means that overcoming this challenge is an opportunity to stay ahead of the competition. In this tough economy, with multiple heavy-weighted factors pulling the strings of demand, changes to inventory and production needs can occur rapidly and frequently. 

Inventory management as a key to visibility

At its most basic, inventory management tracks goods and components across various aspects of production and warehousing, including suppliers, sales and inventory on hand. It can incorporate forecasted sales and demand fluctuations to make processes and warehousing as effective and efficient as possible.

When metals manufacturers manage inventory at its peak through an Enterprise Resource Planning (ERP) system, it can automate and oversee core business principles, like finance, planning, orders, logistics and operations. The result is total, real-time visibility into inventory, and this omniscient perspective has major business benefits in managing inventory effectively.

Financial and efficiency benefits of inventory management

At first glance, ERP systems allow metal manufacturers to optimise inventory management and warehousing by automating necessary functions that allow synchronisation of ordering, picking and transferring. Optimised inventory levels free-up resources, minimise wastage and eliminate unnecessary storage and carrying costs.

Cash flow is released when inventory is kept lean. When reduced demand reflects a drop in revenue, extra funds released from effective inventory management allow manufacturers to spend in necessary channels to maintain operations or diversify their revenue streams.

Match market needs and sales fluctuations for maximum revenue

Inventory management also allows fabricated metal manufacturers to adjust rapidly to changing demand and price fluctuations. As demand surges or drops, inventory management provides the knowledge to meet this change head-on.

When this happens, an integrated ERP system can automate the optimisation of inventory to increase sales as demand increases and help or reduce wastage in a drop. In an economic downturn, protecting or maximising their funds in this way while maintaining supplier relationships are critical for survival.

Digitisation for peak competitiveness

ERP systems automate and integrate the core operations of a business to create effective and simple processes, providing visibility, analytics and intelligence for overall business performance management. For metals manufacturers to be more competitive in a challenging economy, they need to invest in an ERP system, as well as Industry 4.0 technologies, including automation, robotics, artificial intelligence, machine learning and IoT, to enable them to get ahead of the competition and win valuable long-term contracts from overseas competitors.

The widespread operational benefits of effectively managing inventory are not isolated switches; they exist along a continuum. The more efficiently a facility can integrate and manage inventory, the larger the payoff. Therefore, the metals industry should focus on improving inventory management with the help of an ERP system with these capabilities, which will enable them to stay ahead through economically challenging times.