7 Different Types of Inventory

Raw materials are made up of items needed to produce your business’ own goods. It can range from concrete and steel to flour and water depending on what products you manufacture. Tracking your supply of raw materials is the first step to inventory management as it allows you to accurately forecast your production levels for the next quarter and the next year.

Work-in-process (WIP) inventory isn’t as straightforward as raw materials and may refer to almost all materials, components, assemblies, and subassemblies that haven’t yet been declared as finished goods. Included in this category are raw materials that have been released for processing and items that have been processed and waiting for final inspection. Simply put, anything that has a parent material and isn’t considered raw is a WIP.

These are completed items that have passed final inspection requirements and are ready to be sold directly to customers or sent to retailers, wholesalers, distribution centers, and the like. They can also be warehoused or kept in storage for some time before they’re sold or sent to buyers.

Finished goods don’t necessarily have to be sold to be considered as such. What’s important is that they are completed or finished products that are ready to go out the door anytime.

As mentioned earlier, finished goods can be sold directly to your customers or through your distribution partners. Whenever a product reaches any of your distribution partners, they go from being finished goods to being consigned goods – assuming that they are still your property. For example, an automobile that you manufactured and sent to a car dealership is considered a consigned good because you still have ownership it even if you have to share the profit.

If you’re not the one manufacturing or producing goods and are simply reselling them – in other words, you are a distributor, wholesaler or retailer – you most likely have what is called merchandise inventory. These are goods that were purchased from actual manufacturers and then resold to third parties. Although more common in merchandising, it is not unusual for actual manufacturers to have merchandise goods on hand.

Maintenance, repair, and operating (MRO) supplies are items that are consumed during the production process but aren’t necessarily part of the finished product. Examples of this are safety equipment like gloves and packing materials such as tape and cardboard. These things may not be directly part of the finished goods, but the production process cannot be done nor completed without them. Office supplies such as pens, paper, pencils, and rules are also considered MRO goods.

Safety and anticipatory inventory are goods that businesses produce or purchase in order to cover market fluctuations. They aren’t sold immediately and are left in storage to protect businesses against the uncertainties of supply and demand. These items reduce the risk of a stock-out (an event where items are out of stock) which can affect your customer service and deter overall revenue.

In the Philippines, inventory management is the difference between a good business and a great one! Click here as StoRemote explains its importance!