How to solve your QuickBooks raw materials inventory woes
Managing QuickBooks Online manufacturing inventory can present challenges for growing businesses. One of the primary issues is the absence of a dedicated manufacturing module within QuickBooks. However, there are solutions available.
QuickBooks Online is an excellent tool for organizing accounts and finances, but it does have limitations, particularly when it comes to inventory management and tracking raw materials.
While resellers and drop shippers may find it relatively easy to monitor their goods, the process becomes more complex for scaling manufacturers. This is especially true for businesses seeking growth without the luxury of time to manually update inventory consistently.
This blog post will explore the options for businesses using QuickBooks that need to track their raw material inventory.
How to track QuickBooks Online manufacturing inventory
It’s important to understand that QuickBooks Online isn’t a specialized inventory management tool. While you can track finished products as inventory items, managing raw material inventory in QuickBooks Online is a different story.
The QuickBooks Online Plus version offers an inventory management module that allows you to categorize your stock into Inventory and Non-inventory items. This allows you to classify raw materials as Non-inventory items, making it easier to differentiate.
However, it’s crucial to note that QuickBooks Online is primarily designed to track raw materials only as an expense for calculating the cost of goods sold. It doesn’t consider the manufacturing costs associated with production.
For instance, let’s say you use textiles for manufacturing T-shirts and picnic blankets. QuickBooks tracks the expenses of the raw material used, but it won’t account for the value variations in each operation or the additional resources required for producing the picnic blanket with its longer lead time.
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To manage raw material inventory in QuickBooks Online, you have to manually adjust the Non-inventory items whenever you use them in production.
This manual process is inefficient and time-consuming, especially for manufacturers who rely on constantly depleting materials to create finished products. Fortunately, there is a workaround for this limitation, which we’ll explore later.
Creating a list of materials or sub-assemblies for finished products without this feature becomes cumbersome. Tracking the availability of specific materials for different products also gets challenging, as each product may require varying materials and quantities. The lack of a bill of materials and material availability tracking increases the risk of errors in production and purchasing.
QuickBooks Online just hasn’t been designed to effectively track the manufacturing process and associated costs of your raw materials inventory.
Before we look into solutions, let’s see how to input inventory into QuickBooks Online.
How to enter inventory in QuickBooks Online?
To enter inventory into QuickBooks Online, navigate to Products and Services and click New.
From there, you can choose an Inventory Item to open a new window for the item you wish to enter into QuickBooks. Fill out the product name and all the other relevant fields, such as:
Once finished, click Save to enter the item into your QuickBooks inventory system.
If you’re using a spreadsheet to manage your inventory, simply select the Import option to upload the spreadsheet to QuickBooks Online.
And that’s it.
Let’s move on and see how to overcome the limitations of using QuickBooks Online for raw material inventory management.
Issues with QuickBooks Online manufacturing inventory
We’ve established that being able to track only finished goods won’t be sufficient for manufacturers, and using Non-inventory items can work but is very tedious. So. what other options are there?
QuickBooks Online lets you group inventory items together. 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 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. While this may seem like a great solution, it introduces some issues. Let’s go over these in more detail.
1. Negative inventory
Negative inventory in QuickBooks happens when you generate an invoice and your stock level goes below zero. This might seem unlikely, but in the fast-moving world of manufacturing, this is very common.
That might seem like a minor issue, but once your inventory goes negative, 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. This means that you will not have an accurate view of your material stock as your material quantities may be showing higher than they actually are.
Even if you are an MTO business, your inventory quantities would still show incorrectly until the order is fulfilled.
This can cause real problems with your production, like running out of materials for sales orders without even realizing it.
3. Purchasing issues
As an extension of the production problem, you’ll face challenges in determining when to replenish your QuickBooks Online manufacturing inventory.
The quantities of your raw materials will be inaccurate since many will have been used in production but not yet sold.
While it might be tempting to overstock materials to address this issue, it’s a risky approach. Overstocking can lead to higher carrying costs and the accumulation of dead stock, which is not worth it in the long run.
And the last significant challenge is the time-consuming process of setting up groups. That’s because you need to create and track individual Bundles for every single variant.
For instance, if you have twenty T-shirt designs available in five different colors each, you would have to manually create and track a total of one hundred extra Bundles for these variants.
This can be a tedious and labor-intensive task, requiring considerable time and effort to manage them separately.
The QuickBooks raw materials inventory solution
While there are workarounds available that don’t require adopting new software, these can get messy and time-consuming. Luckily there’s a solution that can streamline your inventory management, production process, and sales while keeping your QuickBooks raw materials inventory up-to-date in real time.
Introducing Katana’s cloud inventory software that seamlessly integrates with your QuickBooks Online account. With Katana, you can track your entire production process for sales and manufacturing orders from start to finish, ensuring that your raw material inventory is constantly updated and allocated to orders separately. No more overlapping material usage.
Here are some key features of Katana:
Raw materials stock and finished products inventory management