Management Glossary » Management » 11 Different Types of Inventory explained with Examples

11 Different Types of Inventory explained with Examples

Inventory involves all items, components, parts and raw materials that a company uses in manufacturing products or services and selling them in the market.

It is important for a company to know exactly how many items it has on hand. This can help them decide when the best time might be to reorder an item, or if they have enough in stock before a big sale starts. This is why the company needs to classify different types of inventories.

11 Types of Inventory

There are 11 Types of Inventory which is also known as Inventory classification. Each of them is mentioned below

1. Raw Material

Raw Material

Raw material or raw material means any material that can be directly used for manufacturing or constructing an item. The definition can be broader than that though depending on the industry and context you are using it in. For example, the steel used in a building would be considered raw materials, but it also includes items like plastics and ceramics, in addition to steel.

The raw material is a material used in making products and it is also the material itself.  Raw materials are the initial stuff required for a thing to be made. This can include materials used in the significant beginning phases of a production line (e.g. fibre, wood and iron). Raw materials include anything which can be used in the making of an item: funnels, pumps, cement, bolts and so on.

2. Work in Progress (WIP) Inventory

When we talk about a work in progress (WIP) inventory it can be used as a general term for anything that isn’t built yet but is being built. Examples of things that could be classified as work in progress would be software and designs that haven’t gone through a testing phase yet and aren’t ready for prime time but could be considered commercially viable at some point in the future.

On an item level, an item can be broken down into work in progress components such as components that are in the process of being made and incomplete items that aren’t ready for final assembly (a valid example of this would be an item that hasn’t been built yet and requires some final work)

A simple example is A car that has the frame ready but the car seats or other accessories have not been fitted yet. The car is just a frame and 4 tyres, which means it is a work-in-progress.

3. Finished Goods

Finished Goods

Finished goods, or ‘final goods,’ are products that are complete and ready for sale. Finished products consist of products that have been assembled by the business. They typically include finished product components and parts that have been built to specification.

A finished product may be sold to customers ready to use as one of its many uses: either for consumption; or, for future manufacture; or, as an in-house resource that can be used for research and development purposes.

It is not necessary that a product that has been completely manufactured be considered as finished goods. Example – An iPhone when first manufactured will still go through rigorous quality control procedures before it is classified as ready for sale. Therefore there may be a gap between being a finished good vs being ready for sale product.

4. What are Maintenance, repair & operations (MRO) goods

MRO goods are used in manufacturing processes without directly affecting the quality of a finished product. Also, they are generally the first thing done after a product has been made and captures its first consumer – the consumer pays for the use of these construction & maintenance goods as they are intended for.

MRO goods are important for day to day operation of a manufacturing company. These goods are not accounted as inventory in the books of accounts but might be accounted as miscellaneous expenses or maintenance expenses.

Examples of MRO Goods are

  • Repair Tools
  • Production Tools
  • Cleaning equipment and supplies
  • Uniforms which might include gloves and safety shoes
  • Hardware equipment like nuts, bolts and screws

5. Packaging materials

Packaging materials

Packaging materials are not merely the materials used to make boxes and cartons. It is a combination of materials that have added mechanical strength, chemical resistance, or electrical insulation.

Packaging prevents damage such as a build-up of impurities and traces of chemicals in finished goods. Packaging materials include paper, plastic, metal, foam, and glass.

Every finished good need to be packed tightly in order for it to make the journey from the factory floor, warehouse, or store shelf. Primary packing is what you need when your product can’t stand on its own and requires a secondary type of protection. A tertiary type of package might be needed if this final step isn’t necessary but will help with transport – bulk packaging such as bubble wrap or shrink material are great examples!

The three types of packing materials available include primary packages that protect the goods while maintaining usability (think potato chips!), secondary packs used during manufacturing which may contain labels/SKU information (this ensures nothing falls off), and tertiary packagings like those mentioned above: think bubblewrap & shrink-wrap; these come into

6. Safety stock

Safety stocks and anticipation stock are two types of extra inventory that companies typically buy during disasters or other unexpected events. Safety stocks are stock that companies hold for their own use and use only for emergencies or they are being stored for a surge in demand.

Because they are not meant to last, they are known as short-term stock, or short-term supply. Safety stocks are used primarily for inventory management purposes and may be replenished on a continuing basis when needed. Intentional inventory has room to stretch for a month before the need for it supersedes its previous use.

Preparation of this stock provides a business with a profit cushion during difficult economic times and allows them to react quickly to competitive differences in pricing and product availability.

7. Decoupling Inventory

Decoupling Inventory

The goal with Decoupling Inventory is generally twofold: first, it serves as a buffer when there’s an issue with one part of your manufacturing process causing delays; secondly, by slowing down other departments/lines you’re able to ensure everyone has enough material before

Decoupling inventory is used to prevent stoppages and is used for extra items or work-in-progress (WIP) items kept at each production line statio. Decoupling inventory can be useful if parts of the line are working at different rates and only applies to companies that manufacture goods rather than those who produce services. Decoupled stockpiles allow storage space in an area where there’s little room otherwise!

8.Cycle Inventory

A company’s cycle inventory is usually comprised of materials that are directly used in the production process or they’re part of some regular process. In short, a cycling inventory can be defined as items ordered and restocked on a set schedule to meet immediate needs for business operations.

Cycling inventory helps ensure that the supply of a product or service matches its demand when replenishing stock items are unavailable and decreases warehousing costs by reducing excess stock that must be discarded.

For example, a manufacturer may decide that cycle inventory stock must be on hand for 8 hours at all times, regardless of warehouse capacity or demand.

9. Service Inventory

This is a type of inventory which is used by Services business. Service inventory is the maximum amount of service you can provide to your customers in a given amount of time. Services also need to keep a track of their inventory so that they can supply the service to customers. For Example – An airline is a service and it has limited capacity to serve customers.

10. Transit Inventory

Transit inventory is the stock that’s in transit from the origin to your final destination. This could include goods that are being manufactured and are on their way to your final destination or goods that are on their way to a warehouse, final destination or distribution facility.

11.Theoretical Inventory

Theoretical Inventory

Theoretical inventory is calculated by adding up all inventory on hand at any given time and then comparing it to what they actually have going into the warehouse. Theoretical inventory tells you how much stock is on hand at any given time, but it’s not necessarily an accurate representation of how much inventory is needed by any given company.

For instance, if they have 10,000 T-shirts on hand but only 2,500 actually ready for shipping, the company would count 10,000 shirts as usable but only count 2,500 as ready for shipping. In reality, though, this company might need to quickly add another 5,000 shirts.

So above were all the different types of inventories that a manufacturer or service provider has to keep track of.