five inventory management best practices for scrap metal recyclers

‘’Scrap recycling is an inventory-based business, so the best companies understand all the dimensions of their inventory as it is critical to driving profitability’’ says Mark Valdes-Dapena, scrap industry veteran and Senior Product Consultant at AMCS. 

‘’While purchased scrap remains unsold, it is just tying up valuable working capital and occupying premium yard space. A scrap recycler needs to understand the exact levels of inventory it has, it’s status (raw material, work in progress, finished goods), location and cost valuation. A modern software-based inventory solution makes it possible to have this information available in real-time at your fingertips so you can take smarter decisions.’’.

Despite widespread acceptance of this view, many scrap companies have no automated inventory system or are managing it with a combination of manual, paper and spreadsheet processes. This is inefficient, increasing the likelihood of recording errors leading to poor outcomes in revenue and margin leakage and slow inventory turnover.

Automating your inventory management should be your starting point and these best practices will give you the best chance of success. 

1. Automation, Automation, Automation

Automating all inventory management processes reduces manual error, increases visibility and control 

The challenges of scrap inventory management demand a fully automated and robust solution that has been designed for the specifics of the sector.

The base automation functionality should include:

• Inventory tracking across yard locations as well as robust processes and controls for intracompany and intercompany transfers 

• Inventory identification tools including barcoding, RFID tags etc.  

• Digital grading and inspection apps that allow yard staff to inspect, grade, count classify and re-grade material 

• Integration with inbound and outbound truck and floor scales to minimize data entry and errors 

• Robust controlled processes (subject to multiple authorization controls) to record inventory adjustments in value, count and classifications 

• Accurate valuation of inventory based on a perpetual weighted average costing which can incorporate both landed and other costs including production, freight and tolling etc.

• Demand planning tools to facilitate accurate planning of production based on sales orders 

• Real time reporting of inventory positions 

• Automatic updating of the finance system at month end closing 

3. Use Analytics to get valuable insights into your inventory and its valuation 

‘If you can’t measure it, you can’t manage it’ – Peter Drucker

Business Intelligence tools and standard inventory reports can provide you with detailed insights into accurate inventory position and valuations, re-grades and transfers as well as finished goods.

These insights are invaluable for all your purchase, sales, and operations teams.

It gives you knowledge of what affects your cost build up and margin including assessment of margin rates when prices are rising or falling. This means you can recognize times when margin might suffer and make adjustments that benefits your revenue.

Reporting tools also help you understand your inventory levels, enabling you to analyze seasonal trends and impacts on levels. This helps you make decisions on when you might need to buy or sell to optimize your inventory.

You can also get data on your suppliers and customers, including those who are most profitable to buy from and sell to. This gives you hard data to analyze and adjust sales and purchasing strategies.

Download the Analytics brochure below to learn more.

5. Carry out regular cycle counts

Regular and scheduled cycle counts will ensure that your inventory counts are accurate and up to date. It will also   pinpoint any areas for improvement in your inventory management processes.

Cycle counting can be readily facilitated using digital mobile applications designed for this purpose. 

Download the Mobile Workforce brochure below to learn more.