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Types of Inventory Management Explained

There are several types of inventory that must be managed: 1) Raw materials used to manufacture products, 2) Work-in-progress inventory consisting of unfinished products currently being made, 3) Finished goods that are complete and ready for sale, 4) MRO (maintenance, repair & operations) goods like tools and supplies used in the production process, and 5) Packing materials used to store and ship products to customers. Proper inventory management involves ordering, storing, tracking and accounting for all types of a company's assets until they are ready for sale or internal use.

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175 views3 pages

Types of Inventory Management Explained

There are several types of inventory that must be managed: 1) Raw materials used to manufacture products, 2) Work-in-progress inventory consisting of unfinished products currently being made, 3) Finished goods that are complete and ready for sale, 4) MRO (maintenance, repair & operations) goods like tools and supplies used in the production process, and 5) Packing materials used to store and ship products to customers. Proper inventory management involves ordering, storing, tracking and accounting for all types of a company's assets until they are ready for sale or internal use.

Uploaded by

Ella
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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TYPES OF INVENTORY MANAGEMENT

Inventory management is the process of ordering, handling, storing, and


using a company’s non-capitalised assets – AKA its inventory. For some
businesses, this involves raw materials and components, while others
may only deal with finished stock items ready for sale.

1) Raw materials
Raw materials are any items used to manufacture finished products, or the
individual components that go into them. These can be produced or
sourced by a business itself or purchased from a supplier.

For example:

A business that makes its own bespoke furniture may purchase materials
from a supplier. While a small business supplying specialty herbs may
actually grow these itself.

Either way, raw materials are still considered a type of inventory. And so
must be managed, stored and accounted for accordingly.

2) Work-in-progress (WIP) inventory


Work-in-progress (WIP) inventory again refers to retailers that manufacture
their own products. These are unfinished items or components currently in-
production, but not yet ready for sale.

For our furniture business, this may be products that have been put
together without yet being painted or packaged.

3) Finished goods
Finished goods are products that are complete and ready for sale. These
may have been manufactured by the business itself, or purchased as a
whole, finished product from a supplier.

Most retailers will either purchase whole, finished products from a supplier,
or have custom products manufactured for them by a third-party. Finished
goods are therefore often (but not always) one of the only types of
inventory needing to be handled within retail inventory management.

4) Maintenance, repair & operations (MRO) goods


MRO goods are items used within the manufacture of products, but without
directly making up any part of a finished product.

This can include items such as:

 Production & repair tools.


 Uniforms & safety equipment.
 Cleaning supplies.
 Machinery.
 Batteries.
 Computer systems.

And all items that are consumed or discarded during the production
process.

Small types of inventory like this may seem menial. But MRO is inventory
that still needs to be purchased from a supplier, stored somewhere and
accounted for in financial records.

5) Packing materials
Packing materials are anything you use for packing and protecting goods –
either while in storage, or during shipping to customers.

This is therefore particularly important for online retailers. And may include
things like:

 Bubble wrap.
 Padding.
 Packing chips.
 A variety of boxes.

Many retailers don’t think about packing materials when managing their
inventory. But stocks of these items need to be used and maintained
regularly – and it’s therefore important to include them in overall inventory
reporting and accounting.

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