Manufacturing items
Manufacturing is the process of transforming raw materials into finished products through a defined production workflow. Unlike items that are simply purchased from external suppliers and placed directly into inventory, manufactured goods are created internally by the organization. This process requires careful planning, precise tracking of materials, and strict quality control.
The manufacturing workflow moves through four distinct stages: raw material consumption, the production process, finished goods storage, and batch tracking. Each stage depends on the successful completion of the previous stage. This structured approach ensures that every unit produced is accounted for, that raw material usage is tracked, and that finished goods are properly stored with traceable batch information.
Core components of manufacturing
A manufacturing transaction is built around several core components that work together to complete a production run. Each component must be defined before the production process can begin.
Component | Function |
|---|---|
Finished Item | The product being manufactured |
Source Store | The storage location for raw materials |
Destination Store | The storage location for finished goods |
Quantity | The number of units to produce |
Unit | The measurement unit of the finished product |
Batch Name | The unique identifier for the production run |
Expiry Date | The shelf life of the finished product |
Bill of Materials (BOM) | The list of ingredients required to make one unit |
The manufacturing process flow
A manufacturing transaction is not a single action; it is a sequence of interconnected steps that moves from raw material consumption to finished goods storage.
End-to-end production flow
Raw material consumption — raw materials are removed from the source store to be used in production.
Production process — these materials are transformed through the manufacturing process into a finished product.
Finished goods storage — the newly manufactured items are stored in the designated destination store.
Batch tracking — all items produced in a single production run are grouped under a unique batch name for traceability.
Finished Item
The Finished Item is the product that the organization intends to manufacture. It is the end result of the production process. The item must be clearly defined with its standard unit of measure before manufacturing can begin. Defining the finished item ensures that the correct product record is updated with the new stock once production is complete.
Examples of finished items include:
Premium Wheat Flour
Wooden Chairs
Bottled Cooking Oil
Source Store
The Source Store is the warehouse or storage location from which raw materials are withdrawn for production. This store must contain sufficient quantities of the required raw materials to complete the production run. The manufacturing process consumes these materials during production.
Destination Store
The Destination Store is the storage location where the finished manufactured product is placed after production. This is typically a finished goods warehouse or a designated production output store.
Quantity
Quantity is the number of finished units the organization intends to produce in a single manufacturing run. This quantity is added to the finished goods inventory once production completes. The total raw material consumption is calculated based on this quantity. For example, if one unit requires 2 kilograms of raw material, producing 500 units will require 1,000 kilograms of raw material.
Unit
The Unit is the measurement standard used for the finished product. The unit must be confirmed before production begins. Examples include Pieces, Boxes, Kilograms, or Litres.
Product Type | Typical Unit |
|---|---|
Chairs | Pieces |
Cooking Oil | Litres |
Flour | Kilograms |
Batch Name
The Batch Name is a unique identifier assigned to a specific production run or lot. Naming conventions vary by organization, but they often include production dates, shift codes, or product codes.
Examples of batch names include:
FLOUR-BATCH-2026-07-20BATCH-A-001PROD-2026-08-04-SHIFT1
Expiry Date
The Expiry Date is the date when the manufactured product is no longer considered safe or fit for use or sale. This field is completed only for products with a limited shelf life, such as food items, pharmaceuticals, and chemicals.
Once an expiry date is set, the organization can generate reports alerting staff to products approaching their expiration. This enables effective stock rotation where older stock is used before newer stock and prevents the distribution of expired products.
Bill of Materials (BOM)
The Bill of Materials is the complete list of raw materials and quantities required to produce one unit of the finished product. The manufacturing process consumes these materials during production. For manufacturing to succeed, the organization must specify exactly which raw materials are needed and in what quantities.
Components of a Bill of Materials
For each raw material, two pieces of information must be defined:
Component | Purpose |
|---|---|
Raw Material | The specific ingredient or component being consumed |
Quantity per Unit | The exact amount needed to produce one finished unit |
How the BOM Works
The Bill of Materials operates on a simple multiplication principle. The organization defines the ingredients needed for one unit. The total consumption is calculated by multiplying those per-unit quantities by the total production quantity.
For example, if the BOM defines:
0.5 kg of Sugar per unit
0.25 liters of Water per unit
Producing 100 units will require:
50 kg of Sugar
25 liters of Water
Worked Example: Producing Premium Wheat Flour
Producing 500 units of Premium Wheat Flour
Select Premium Wheat Flour as the Finished Item to produce.
Define the production quantity as
500units.Confirm the Unit is set to Kilograms.
Assign a Batch Name such as
FLOUR-JULY-BATCH-01.If applicable, set the Expiry Date to reflect a six-month shelf life.
Identify the Source Store where raw materials are kept.
Identify the Destination Store where finished flour will be stored.
Refer to the Bill of Materials to verify the required ingredients and quantities for 500 units.
Manufacturing vs. Purchasing
It is important to distinguish between manufacturing an item and purchasing it.
Action | Description | Is This Manufacturing? |
|---|---|---|
Purchasing items | Acquiring finished goods from suppliers | ❌ No—this is procurement |
Transferring items | Moving items from one storage location to another | ❌ No—this is transfer |
Consuming items | Using items for internal purposes | ❌ No—this is consumption |
Combining raw materials | Creating new products internally from ingredients | ✅ Yes—this is manufacturing |
Assembling kits | Combining multiple components into a single kit | ✅ Yes—this is manufacturing |
Compounding medications | Mixing ingredients to create a specific medicine | ✅ Yes—this is manufacturing |
The Overall Manufacturing Workflow
From raw materials to finished product
Define the Finished Item — Register the product that will be produced internally.
Define the Raw Materials — Register all ingredients required for production.
Stock the Source Store — Ensure sufficient quantities of raw materials are available in the source storage location.
Define the Bill of Materials — Specify exactly which materials and quantities are needed to make one unit.
Configure the Production Run — Select the finished item, source store, destination store, quantity, and batch name.
Validate Stock Availability — Confirm that all required raw materials are available in the source store.
Execute Production — Complete the manufacturing transaction.
The Impact of Manufacturing on Inventory
When a manufacturing transaction is completed, two simultaneous inventory changes occur.
Inventory Change | Impact |
|---|---|
Raw Materials | The quantity of raw materials in the Source Store decreases based on the Bill of Materials |
Finished Goods | The quantity of the finished item in the Destination Store increases by the quantity produced |
This dual update ensures that inventory records remain accurate. The organization can see exactly which materials were used and exactly which products were created.
Quality Control and Batch Traceability
Batch traceability is one of the most important aspects of manufacturing. When a production run is assigned a batch name, that name becomes a permanent record tied to the finished product.
If a quality defect is discovered later, the batch name allows the organization to:
Identify exactly which production run is affected
Determine which raw materials were used in that run
Isolate the affected products from inventory
Initiate a targeted recall without affecting other batches