Offsite construction (OSC) methods have shown better quality, cost reduction, and time-saving advantages in construction projects over traditional construction methods. Steel fabrication is one of the widely known methods of OSC. The competitive environment in the steel fabrication industry amplifies the need to optimize resource utilization and minimize fabrication waste/Muda. Construction management practitioners attempt to solve the waste problem through precise planning of construction processes. However, significant uncertainties in the time estimation to perform a task, non-repetitive element production, and collaboration of many resources for production make the planning a challenge for steel fabrication plants’ managers. In the steel fabrication domain, the sizes of intermediate inventories behind prefabrication workstations represent a great indicator of bottlenecks and waste. Hence, the proposed study attempts to reduce waste in steel fabrication processes by identifying the optimal inventory size of different workstations. The scope of the current research is limited to inventory sizes behind the manual steel fabrication processes (i.e., fitting and welding stations). The proposed method includes the utilization of Discrete Event Simulation (DES) to quantify the waste and optimize it in the ideal state. The proposed method results show a 14.9–19.7% reduction in manual station waste using an optimized construction strategy. This optimization minimizes the inventory and waiting time in steel fabrication and leads to less damage in prefab elements handling or storage, balances the productivity rate in a plant, and saves unnecessary inventory spaces in the plant's layout.