What are the Different Types of Inventory?

July, 2020
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Inventory is defined as the products or goods stored on hand or near warehouses near your business location in order to fulfil a customer’s order. To simply put it, Inventory can be likened to the food items you store in your cupboard or food storage to be used in the future or when you need to use it. it.The type of Inventory you use will depend on the kind of business you
have, either in start-up, retail, wholesale or manufacturing.

The type of Inventory you use will depend on the kind of business you have:

a. Start-up

These kinds of business often use manual systems like Excel or Google sheets in managing their Inventory database and base their decisions in managing their reordering. Because of the manual process, it takes a lot of manpower and effort to do basic reordering, stock monitoring, end-to-end production, lead time and demand forecasting, reports and even accounting.

b. Retail

These kinds of business are the direct Business to Consumer (B2C) selling. There are two types of retail depending on how and where the sales take place.

  • Online Retail or Ecommerce where the customer purchase online.
  • Offline Retail is the traditional brick-and-mortar store with a salesperson helping the customer with the purchase.

c. Wholesale

These are the type of businesses which sell directly to other Businesses (B2B). These either involve a Manufacturer and Wholesaler, or a wholesaler and a retailer.

d. Manufacturing

These are businesses that assemble to make finished goods by using raw materials, components.

What are the Different Types on Inventory?

Basically, you can categorize the inventory types into 4 classifications:

a. Raw Material

These are items in your inventory that are used to produce a unit, subassembly, or the finished products. In other words, this is the unprocessed material like grain, crude oil, paper, wood, steel, nuts and bolts, chemicals, wheels, and food items that companies use in there manufacturing processes to produce Finished Goods to sell to consumers.

b. Work-in-Progress

from the word itself, are items that are currently being processed to produce a subassembly of a product or can be the finished product itself. These are items that are just waiting for the final confirmation after it gets checked if it passed the companies standards and quality.

c. Finished Goods

There are items which already cleared after going through all the quality control and inspections. These items are already completed and can now be distributed and be prepared for sale to customers.

d. MRO (Maintenance, Repair & Operations) Goods

Another commonly used term is consumables and these goods are often expensed differently. ie janitorial supplies are expensed directly. oils, lubricants etc, that are part of the manufacturing process are capitalised and become part of the value of the final good.

To further understand the types of Inventory, a good example is the clothing business. Before you can make the clothes, you will need several items such as the fabric you will use, the threads, needles, buttons. These now are your Raw Materials. During the production, your items such as sewing machine, scissors, oils will be classified as your MRO Goods. When the product is done and for quality inspection already, to see if the product was able to meet the standards you have set, the item can now be categorized as Work-in-Progress. After all, requirements are met, the products will now be packed and shipped to your customers which is now the Finished Product.

Final Summary

That is why it is important for any business, especially if it is a product-based business, to have an Inventory Management System to organize products to be able to meet the demands of customers. This also prevents dissatisfied customers from looking for other businesses because the products they are looking for are not available in your store. If a business is a manufacturing plant, you should have enough raw materials, work-in-progress and supply of finished goods to keep the factory running and meet the demand of the market.

With the right Inventory Management System, you can optimize all your process to better manage your inventory. It can give you accurate information about your inventory and get the data whenever you want.

This can ensure all items in your inventory are accurately monitored and get results, if your items are at their right stock-levels, whenever you want. To know more about how you can better manage your inventory, come visit https://whichaddon.com/

Are you ready to bring that perfect system in your head to life?

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