In this post, we are discussing inventory. Let’s begin.
Inventory or stock is a term that refers to the goods and materials that a business holds for a goal of resale production or utilization. In a manufacturing industry, inventory is the final goods, the raw materials used in manufacturing, and the semi-finished goods in the warehouse or a factory store. Since there is no exchange of physical stock in a service industry, the inventory is most tangible.
Now is the time to know the types of inventory.
Raw materials
Raw materials are any object utilized in the production of completed products and the various components that go into them. These can be manufactured or sourced by the company itself or acquired from a provider. These inventory items are components that are currently in stock but have yet to be used in work or complete good inventory.
Example
A company that creates its custom furniture may buy materials from a source. At the same time, a small firm selling specialist herbs cultivates them themselves.
Work-in-progress (WIP) inventory
Work in process WIP inventory is used by shops that make their goods. These are unfinished goods or components presently in production but have yet to be made available for purchase. In other words, whatever direct and indirect raw materials your company uses to produce completed items are considered WIP inventory.
Example
If you sell medical equipment, the packaging is considered a work-in-progress WIP. This is because the drug can only be offered to the customer once it is properly packaged. It plays an important role in WIP.
Finished goods
Finished goods are finished products that are ready for sale. These might have been made by the company or obtained as a full, finished product from a source and ready to sell to a supplier. This category includes goods ready to sell to your client, known as finished goods.
Example
A jewelry company makes charm necklaces. To make a finished object suitable for sale, the staff connects a necklace to a pre-printed card and slides it into cellophane envelopes. The final goods cost of goods sold prices its packaging and the labor required to create the item.
Maintenance, repair & operations (MRO) goods
MRO goods are items utilized in manufacturing products but do not directly comprise any part of the completed product. Inventory is needed to construct a cell of the finished product but is not integrated into the product itself.
It can include things like tools for production and repair. Uniforms and safety equipment are required. Cleaning materials. Machinery. Batteries. System of computers and all products consumed or wasted throughout the manufacturing process.
Example
MRO might include gloves used to handle product packaging; for example, pens, highlighters, and paper are additional examples of basic supplies. A condominium community maintenance repair and running supplies include copy, paper, folders, printer toner, glass cleaner, and brooms used for sweeping the ground. These are also examples of MRO goods.
Packing materials
Packing materials are classified into three kinds. Primary packaging protects and makes the product useful. Secondary packaging is final product packaging that contains labels or SKU information. Tertiary packaging is bulk transport packaging.
Packing materials are any materials used to pack and protect items while they are in storage or being shipped to customers. This is especially crucial for internet sellers. And may include items such as;
- Bubble wrap
- Padding
- Packing chips
- A wide range of boxes
Safety Stock and Anticipation Stock
Safety stock is excess inventory purchased and stored by a corporation to cover unexpected circumstances. Although safety stock has carrying expenses, it contributes to consumer happiness.
Similarly, anticipation stock is made up of raw materials or completed goods that a company buys depending on sales and production patterns. If the price of raw materials rises or the peak selling season approaches, a company may acquire safety stock.
Example
A veterinarian in a tiny village stores disinfectant and dog and cat trees to satisfy consumer demand if the roadway floods during the spring thaw, causing supply trucks to be delayed.
Another example is in preparation for the June wedding season and event planner purchases in expensive schools of ribbon and flowery tablecloths.
Decoupling Inventory
Different products or WIP held at each production line station to prevent work stoppages are referred to as a decoupling inventory. While all businesses may maintain safety stock, decoupling inventory is beneficial if various line segments operate at different speeds and only apply to businesses that make things.
Example
In bakeries, decorators maintain a supply of sugar roses to adorn wedding cakes. Even if the ornament team’s supply of frosting mix is delayed, the decorators may continue to work. Because the flowers are an integral component of the cake’s design, the Baker could not present a finished cake if it ran out.
Cycle Inventory
Cycle inventory is the stock used to respond to regular sales and demand estimates instead of saving the stock, which is utilized when demand or supply fluctuates. Cycle inventory, sometimes referred to as a cycle stock or working inventory, is the total inventory available to satisfy normal demand. It consists of the items employed initially to fill client orders in a company’s normal business cycle.
Example
A fresh refill order comes when a restaurant’s final 500 paper napkins are used. The napkins neatly fit into that designated storage place.
Service inventory
Service inventory is a notion in management accounting that relates to how much service a company can deliver in a particular period. A service inventory is a collection of internal services, such as communication and process improvement, that enable a company to respond quickly to consumer demand and provide higher quality, speed and performance to its customer at a lower cost.
Example
A hotel with 10 rooms has a weekly service of 71-night stays is an example of service inventory.
