In many manufacturing businesses, especially SMEs in Vietnam, a common paradox is occurring: inventory is constantly increasing, but factories still lack raw materials for production, leading to frequent adjustments to production plans.

On the surface, this might seem like an inventory problem. But looking deeper, inventory is just the tip of the iceberg. Instead, the real question businesses need to be concerned about is, "Are we truly understanding our material needs in real time?"

In today's context, materials management is no longer just a purely operational function, but is gradually becoming a decision-making infrastructure that directly impacts a business's revenue, costs, and competitiveness. Let's explore this further with 1C Vietnam in the following article.

1. What is materials management? The role of materials management in manufacturing businesses.

In many manufacturing SMEs, materials management is often simply understood as tracking inventory, ensuring there are no shortages, or handling incoming and outgoing goods. However, this approach only reflects the "end" of the problem. In reality, inventory is merely the "end point" of a series of decisions that have already taken place: how the business forecasts demand, how it plans production, and what information it bases its purchasing decisions on.

When these decisions are inaccurate, inventory will always be wrong even if the warehousing system operates perfectly. This makes it easy for businesses to fall into a situation where they have both excess unnecessary materials and shortages of essential raw materials, leading to wasted working capital and production disruptions. In other words, inventory is not the cause but the consequence of the decision-making system within the business.

2. When the operational problem is essentially a data problem.

For many years, businesses could operate efficiently based on experience and historical data. However, in the current context, where market demand changes rapidly, supply chains are unpredictable, and input costs are constantly fluctuating, this approach is gradually revealing its limitations. Forecasting is no longer about "guessing correctly," but rather about processing and connecting operational data. This leads to a crucial reality: businesses don't lack data, but they lack a system for that data to work together effectively.

a. Fragmented data: a breaking point in materials management

In most manufacturing SMEs, data exists in multiple places:

• The Sales Department keeps the order data.
• The Production Department maintains the production schedule.
• The Warehouse department maintains inventory records.
• The Purchasing department makes decisions based on multiple sources of data, reports, etc.

Furthermore, many businesses still use Excel spreadsheets or separate software for each operation, with data updated with each production run or batch. This results in information delays and inconsistencies. Consequently, businesses never have a truly comprehensive overview, or a "single source of truth," at any given time: how much material they currently have, whether that amount is sufficient to fulfill orders, and how much needs to be replenished to ensure uninterrupted production.

When each department looks at a different version of the data and makes decisions from its own perspective, businesses encounter familiar situations: committing to orders but lacking sufficient materials for production, missing sales opportunities due to inaccurate information, or constantly adjusting plans because the data doesn't reflect reality. The problem, therefore, no longer lies with a specific department, but with how the entire data-driven system operates.

b. Inventory: From an “accounting asset” to a “strategic asset”

In a stable market, discrepancies in inventory management may not have a noticeable impact. However, in today's context—where demand fluctuates rapidly, lead timesare unstable, and input costs are constantly changing—inventory accuracy is more crucial than ever.Inventory is no longer just an accounting or operational indicator; it directly affects the ability to fulfill orders, revenue, and customer confidence.

When a business doesn't know exactly what it has in stock, the entire chain of decisions becomes skewed: incorrect forecasts lead to incorrect purchases, incorrect purchases lead to incorrect inventory levels, and consequently, the entire operational system is disrupted. A small discrepancy in data can quickly amplify into a major risk. Businesses cannot fulfill orders, optimize sales operations, and gradually lose their competitive advantage in the market. In this situation, inventory is no longer just an "accounting asset," but becomes a strategic asset reflecting the business's management capabilities.

3. From Inventory Management to Material Flow Management: The New Role of ERP Systems

The shift in the perception of inventory has led to a larger shift in how businesses manage materials. Instead of viewing materials as a static asset that needs to be controlled, businesses are beginning to see it as a continuous flow that needs to be monitored and coordinated.

This can only be achieved when data is updated in real time, departments share a common information source, and decisions are made based on data rather than emotion. Then, inventory is no longer a "blind spot" in financial reporting, but becomes a readily available source of information for decision-making. Businesses not only know what they have, but also what they need to do next.

This shift has also changed the role of enterprise management systems. Previously, ERP systems were often evaluated based on the number of features and business processing capabilities. However, in the current context, that is no longer the deciding factor. ERP systems are gradually becoming a central data infrastructure, where information from multiple departments is connected, synchronized, and continuously updated in real time. This capability helps businesses reduce data latency, improve forecasting accuracy, and make decisions faster.

In today's context, effective inventory management is inseparable from leveraging and connecting data within the enterprise. This is a key factor that helps businesses not only solve inventory problems but also improve overall operational capabilities.

4. Where do SMEs begin to learn about forecasting material demand using data?

Not every business needs to implement complex systems immediately. More importantly, it's about changing the approach. Inventory management is no longer just about the warehouse; it's about data and the decisions made based on that data. Therefore, it might start with reviewing how the business is currently using data in its operations.

Standardizing inventory data, connecting information between departments, and building a clear forecasting process are fundamental steps. Simultaneously, businesses need to gradually reduce their reliance on fragmented tools and move towards a unified system where data is updated and used consistently.

To gain a better understanding of this issue from a practical perspective, with consultation from experienced experts, businesses can participate in the webinar "Data-Driven Material Demand Forecasting - Strategies for Businesses to Remain Stable Amidst Fluctuations," organized by 1C Vietnam on March 26th.

In the webinar, experts will analyze together:

• Common mistakes in forecasting material demand.
• Clarify the role of interconnected data in improving accuracy.
• Sharing how to build an effective materials and inventory management process.

In addition, practical implementation experiences from manufacturing plants will be compiled and shared for businesses to refer to and apply.Register to attend and ask questions directly to the experts at the Webinar HERE.