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Inventory of Difference Businesses and their Types

Inventory aka Stock which business holds the goods and materials for resale. Generally understood the term, Inventory means the physical stock of goods kept in store to meet the anticipated demand. Every company needs goods or materials for multiple purposes and maintains them on hand at or near to a business location so that the firm may meet the demand and fulfill its reason for existence. The pace at which the inventory gets converted into finished goods and the finished goods get sold and get converted into revenue is also called inventory turnover.

Every company has inventory in a different form. Three businesses are merchandise, manufacturing, and Service. Out of these inventory plays a major role in merchandise and manufacturing than Service-based companies. Inventory in a service context is quite difficult to explain and intangible.

Inventory Management Software


Following are the different types of inventory:
  • Raw Materials
  • Work in Process
  • Finished Goods
  • Packing Materials
  • MRO Supplies
Raw Materials
Raw materials or goods purchased by the manufacturer to produce components, subassemblies, or finished products. These inventory items may be extracted materials that the firm or its subsidiary has produced. If the item is partially assembled or finished goods to the supplier, that also may be considered as a raw material if the firm had no input into its production. Generally, raw materials such as iron ore, water, grain, minerals, petroleum, paper, wood, steel, and food items as they used to produce finished items. The items purchased from outside the firm also considered as raw materials such as nuts and bolts, ball bearings, key stock, casters, seats, wheels, and even engines may be regarded as raw materials. Raw materials are then incorporated into the final product or become part of a subassembly. Subassemblies are then used to manufacture the final product.

Work in Process
Work in process, Work in progress, Goods in process or In-process Inventory is firm’s partially processed raw materials waiting for the completion of the production floor. They may or may not be ready for sales. These also called as semi-processed goods. This process generally includes all materials from raw materials that are partially processed up to material which completely processed and is awaiting final inspection and acceptance before inclusion in finished goods. This level of inventory should be kept as low as possible. In many companies, a lot of money is blocked over this level which can be used to produce better returns.

Finished Goods
Finished Goods are the final product after the manufacturing process that is ready for customer orders. Thus, this type of inventory (Finished Goods) is the stock of completed products. These goods have been inspected and passed so that can be transferred from work in process to the Finished Goods Inventory. Hereafter finished goods can be sold directly to customers or through retailers, wholesalers and distribution centers. Some companies sold products after completion of the product, on the other hand, some are getting an order first and then the product is manufactured as per the specifications.

Packing Materials
This inventory involves the process of Packing Goods or materials. Within this Inventory there are two types, one is primary packing inventory and another is secondary packing inventory. As the name suggests Primary Packing is something important without which the goods can’t be used. For example, a tube of toothpaste is its primary packing. Secondary packing is used to pack the goods so that they don’t get damaged during handling, transit, etc. or to make the goods seem more appealing to the customers. For example, the carton used to pack the tube of toothpaste is its secondary packing.

MRO Supplies
MRO (Maintenance, repair, and operation) supplies are used to preserve and maintain the production process and its infrastructure. MRO Supplies also known as consumables in various parts of the world. These goods are usually supporting materials for the production process. The maintenance and repair supplies include the lubricating oil, coolant, bolt, nuts, etc. that are used during the production of various machines and machine components. Operating supplies include stationery and office supplies used by a company.

Other types of inventory are transit, buffer, anticipation, decoupling and cycle Inventory.

Transit Inventory is used to transport raw materials, Work in process and finished goods from one place to another, to serve various purposes such as sales, purchase, further processing, etc.

Buffer Inventory materials are purchased in case of meet future uncertainties. It is something kept for safety. Buffer inventory is very useful for non-stop production and achieves finished products as customer orders at that time.

Anticipation inventory is the Inventory that the firm holds over their current need in anticipation of possible future events. This tactic usually used by retailers who build their inventory a months before the demand for their products will be unusually high (Seasonal Events such as Christmas, Halloween)

In Manufacturing companies, the machines and plants always need to be run. The reason for this is the presence of an inventory of parts between machines, a decoupling inventory that helps as a shock absorber, cushioning the system against production irregularities.

Cycle inventory is the inventory to balance the carrying cost and holding cost for optimizing the inventory ordering cost as suggested by Economic Order Quantity (EOQ).

Comments

  1. Nice reading, I love your content. This is really a fantastic and informative post. Keep it up and if you are looking for barcode scanner app for inventory then visit AdvStock Inventories.

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