How to Solve Your QuickBooks Raw Material Inventory Woes
QuickBooks Online is an awesome tool when it comes to organizing your accounts and finances. There’s no arguing with that.
But there’s also no doubt that it does have its limitations. Especially when we come to the subject of inventory management and QuickBooks raw material inventory.
Because as easy as it might be for resellers and drop shippers to keep track of their goods, it’s a whole different story when it comes to manufacturers and makers.
Especially if you’re looking to grow your business and don’t have time to constantly be manually updating your inventory.
So, what’s the issue here exactly?
How to Use QuickBooks to Track Raw Material Inventory
Well, the first thing to note is that QuickBooks Online wasn’t designed to be a specialized inventory management tool in the first place.
Sure you can track your finished products as inventory items, but it’s a different story when it comes to QuickBooks Online inventory raw materials.
QuickBooks Plus version offers an inventory management module which will give you the option to separate your stock into “inventory” and “non-inventory” items.
Non-inventory items are meant to be used for materials.
However, the main point to note here is that QuickBooks is designed to only track your raw materials used as an expense to give you a calculation of your cost of goods sold. However, it doesn't take into account the manufacturing costs of making a product.
For example, you handle cloth that you use to make t-shirts and picnic blankets. QuickBooks will only track the expenses of raw material used in production but doesn't consider that the value changes for each operation (perhaps the lead time is longer for the picnic blanket and costs more resources to produce).
With QuickBooks online raw material inventory you'll need to make a manual adjustment to your “non-inventory” items as and when you finish using them in production.
Of course this is incredibly inefficient and time consuming, especially for a manufacturer whose business relies on constantly exhausting materials to make finished products. There is a workaround to this, which we will explore a little later!
And the second thing to note is the problem of not having a bill of materials (product recipes) feature. That means you cannot create a list of material or sub-assemblies for finished products.
Without this feature tracking the material availability for specific products becomes a lot more cumbersome because like the previous example, each product will have varying materials, and amounts of those materials used.
QuickBooks lacks of bill of materials and tracking of material availability means that it’s very easy for you to end up making mistakes in production and purchasing.
And that’s the issue here.
QuickBooks Online just hasn’t been designed to track the manufacturing process and associated costs of your raw materials inventory effectively.
But there must be a way around this right?
QuickBooks Raw Material Inventory Workaround
Where there’s a will, there’s a way, right?
Well kind of, but not really.
QuickBooks Online does allow you to group inventory items together. So, this way you can make sure that when a product is sold, the materials associated with that product also have their stock reduced.
The way you do this is by simply ignoring the use of “non-inventory” items, and creating your materials as “products”.
You can then group them together using the “Bundle” option and set the quantities appropriately.
Now when you sell this “Bundle” your materials and finished product stock will be reduced automatically.
Seems simple enough doesn’t it?
Sadly, it’s a bit too simple.
There are four issues that come up here:
1. Negative inventory
Negative inventory is essentially when you generate an invoice in QuickBooks when your stock level goes below zero. This might seem unlikely, but in the fast-moving world of manufacturing, this is very common.
It happens when you fulfill a sales order without updating your QuickBooks inventory and end up in negative numbers.
Now that might seem minor, but the problem is that once your inventory goes into the negatives, QuickBooks will falsely calculate your reports and accounts. This includes your profits, COGS, cash-basis balance sheets and QuickBooks chart of accounts for raw material inventory.
2. Production issues
The second issue is that even when you set your materials as “inventory” items in QuickBooks, they are still not going to be reduced in stock until they are sold.
Of course, what this means is that you will not have an accurate view of your material stock, because your material quantities may be showing higher than they actually are.
Even if you are an MTO business you will still have this issue because until the order is fulfilled you will be lacking insight into your material availability.
This can cause real issues with your production because you could run out of materials for sales orders without even realizing, if you use raw material inventory management QuickBooks as your main reference point.
3. Purchasing issues
As an extension of the problem with production, you will also not know when to purchase more material in this way.
Your raw materials quantities are going to be inaccurate because many of them will already have been used in production, but not yet sold.
You may be tempted to overstock your materials to counter this problem, but that is a potentially dark road to go down. The risk of increasing your carrying costs and accumulating dead stock will increase dramatically.
Not worth it.
The final point is simply that it is just so time-consuming to set up groups for each and every one of your products. Because don’t forget that you will have to create and track an individual “Bundle” for every single one of your variants.
If you make twenty t-shirt designs that come in five colors each, that means a total of one hundred extra “Bundles” you have to create manually, and then track separately.
The QuickBooks Raw Material Inventory Solution
So, the question is how can we go about solving QuickBooks online raw material inventory problems?
Because as brilliant as QuickBooks can be for your accounting and finances, there’s no doubt that there are shortfalls when it comes to using QuickBooks for manufacturing.
Sure, you can do basic inventory management of your finished products, but the fact is that it’s not enough when you are constantly using materials to create those products.
You need to be able to track quantities, costs and product recipes so that your production line is running as efficiently as it can.
And that’s where Katana comes in.
Katana Smart Workshop Software has been designed by makers for makers. It’s an all-in-one solution which manages your inventory, production, and sales in sync with your QuickBooks account.
Check this video out for an overview of the Katana x QuickBooks integration:
This way you can follow all your sales and manufacturing orders from start to finish with our visual, color-coded dashboard without having to rely on tedious spreadsheets.
Here are some of its key features:
Raw materials stock and finished products inventory;
Easily calculate your manufacturing costs;
Use as a production scheduling software;
Sync accounting with your QuickBooks MRP;
Plan your purchasing efficiently;
Ditch inefficient excel spreadsheets forever; and
Keep your entire business workflow on a single dashboard.
The main point to keep in mind is that Katana helps you do all these daily tasks so that you can instead focus on growing your product-making business. That means working on your improving your product and communicating with your customers.
Because although your QuickBooks raw material inventory is important, it’s only one step in making sure that your customers get the products they love delivered on time.