Every business has different types of inventory depending on what goods they sell. There are different ways to account for inventory and different systems to keep stock levels at an optimum balance. By breaking down the types of inventory, it will make it easier to see what can go into the process of producing, storing, and selling inventory and how to account for it along the way.
Types of Inventory
At the base of any manufacturing process, you have raw materials. Raw materials are all the different parts and pieces that come together and make up a finished product. They are used in the assembly process and are added in like pieces of a puzzle. Once all pieces of the raw materials puzzle have been placed, you have a finished product.
A simple way to break down raw materials is to think of a bakery and what would go into a bagel. For a bakery that produces bagels, the raw materials would be the ingredients; the yeast, flour, sugar, salt, oil and poppy seeds (for toppings). These ingredients are all components or raw materials that get assembled together to become bagels. Raw materials should be included in the stock take as inventory. In this situation, a food manufacturing inventory solution would be very helpful. The inventory software can help with the stock take and keep a detailed log of the raw material levels and track when they need to be replenished.
Work-in-progress is as simple as it sounds. Work-in-progress inventory is inventory that is partially completed goods. These can be comprised of specific materials or parts that are half way through their journey to becoming a completed product. Work-in-progress inventory can be made up of a variety of goods and materials. It can include raw materials that have shifted from being stocked on the shelves and moved into the manufacturing and assembly area.
Using our previous example, once the raw materials from the bakery come out of the storage shelves and into the bagel production zone, they are now considered work-in-progress inventory. On the other hand, work-in-progress inventory can be finished goods that are just awaiting the final stages of packaging for delivery.
Finished goods are completed products that are ready to enter the market. They have been through all necessary stages of production and are able to be sent out for delivery. The finished goods can be shipped out to other retailers, wholesalers, or can be passed on directly to customer hands. However, there might be some layover from when a product is finished until it ships out of the warehouse. In this case, there might be area for finished goods, like a holding zone, storage centre, or just a corner of the warehouse. Either way, it needs to be stored in a safe place so the goods do not become damaged. Storing the finished goods only becomes a problem when the inventory of finished goods grows faster than the amount of other inventory, including raw goods and work-in-progress.
This dilemma may indicate that the production aspect of the business needs to decrease its output until they are able to move and sell more finished goods. Interestingly, finished goods can be recorded differently in different businesses. For instance, when a specific product is custom-made, it is not included in the finished goods inventory count until it has been formally sold.
These are the core types of inventory in a business. However, inventory is often expanded to include other types that don’t fall into these categories. For example, it may not be items that the bakery produces, but items like cashier and office equipment, packaging bags and boxes and labels might all be necessary components that a business should include in their inventory.
Keeping track of inventory throughout these different stages can be difficult. It may seem that inventory is always evolving into another form or category in the production process. However, online inventory management can help track and simplify all types of inventory throughout these production processes.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.