Thu. May 26th, 2022

There are many different sorts of inventory, and this article explains how to keep track of them. You can receive the greatest return on investment (ROI) for your organization if you know the finest inventory methods and analysis methodologies.

Let’s dive in.  

What is Inventory?

For businesses, inventory, also known as merchandise, describes the materials and commodities that a company keeps on hand for potential consumers. In other words, resources and goods serve as products that a firm sells to clients to make a profit. 

These are not used to produce anything, nor are they employed to promote commercial activity. The inventory’s sole function is to generate profit. However, if an item is for sale, it cannot be counted as inventory. Check the inventory qualities to determine if an asset is inventory or otherwise. 

A business’s inventory is the service it provides at a particular time. For example, a hair salon can serve up to 15 customers each day, and it becomes the stock.  

Also Read: How To Scale The Retail Business Using Inventory Loans

Types of Inventories 

Here are the different types of inventories businesses use depending on the nature of their business.  

Anticipation Inventory 

Such stockpiles are built up by corporations in anticipation of future demand for a particular product. A major holiday, promotion, festival, or even a strike causes them to build up. 

Example: Companies that make winter-themed cosmetics ramp up manufacturing in preparation for the cold weather. 

Safety Stock or Fluctuation Inventory

In the event of supply and demand uncertainty or a long lead time, inventory is held. A stock out might occur if the lead time is longer or the demand is more than expected. Safety stock is kept on hand just in case. Preventing any interruptions in production or delivery to customers is the primary objective. It’s also known as “reserve or buffer stock.”

Example: Jewelers stock up on gold before Diwali or wedding season as a precautionary measure because gold is a highly volatile commodity.

Lot Size Inventory

Items purchased or manufactured in more significant numbers than necessary for the current market are known as lot-size inventory. It is possible to buy this inventory to save money on inventory, shipping, setup, and clerical costs, as well as when making or buying products at the same rate is not feasible. Cycle stock is the name given to this sort of stock. Some of the stock is depleted as more orders are shipped.

Example: Before the winter season, businesses buy a lot of winter wear. 

Repair, Operating, and Maintenance Supplies

The products that make up operational, repair, and maintenance supplies aren’t immediately tied to any of their actual products; instead, they help keep the company running smoothly. 

Example: Generally, this includes cleaning materials such as mops and brushes and other equipment used to maintain machines.

Raw Materials Inventory

Using this inventory, the corporation creates finished products sold to customers. Only businesses engaged in producing goods can make use of this inventory. Once the product is finished, it’s impossible to tell which ones are.

Example: Shampoo manufacturers get their basic materials from the oil utilized in their products.

Components inventory

Components are somewhat comparable to raw materials, yet they may be identified in the finished goods. The only businesses that can use this inventory are those engaged in product production.

Example: Applies to the clothing used in the production of finished outfits. 

Also Read: How Does Working Capital Help In Keeping Your Business Stay Agile?

Work In Progress (WIP) Inventory

Parts, raw materials, administration, workforce, and other packing supplies are all included in this inventory. 

Example: WIP inventory can be thought of as the various motorcycle components that are utilized to complete its structure at a workspace.

Finished Goods Inventory

Ready-to-sell products make up the bulk of this stockroom’s contents. Manufacturers and distributors can both use this inventory.

Example: Tobacco products that have been finished and refined are known as finished goods inventories.

Packing and Packaging Materials Inventory

For packing, this inventory is needed. It protects the product from environmental degradation or harm. It is also useful for labeling and is often well-decorated. Large cartons for bulk orders are also included.

Example: Large cartons pack snacks like crackers, cookies, and wafers.    

Decoupling Inventory

The WIP (work-in-progress) inventory is kept at the manufacturing line stations to avoid work stoppages. This inventory is useful if various machinery is used to process the items. The only purpose for this is for production.

Example: Even if the natural flowers aren’t supplied, a venue’s event management business will have artificial flowers on hand to beautify the space in their absence. Faux flowers are decoupling inventory in this case. 

Service Inventory

Companies that provide services instead of products are the focus of this discussion. A service inventory relates to the services a company can provide at any one time. Two hundred fifty clients can be served in 10 days by a sauna with five treatment rooms.

Example: On any given day, a hotel with 100 rooms can accommodate 100 guests. Here, the 100 rooms are the service inventory.  

Transit Inventory

This inventory keeps track of the commodities moving between distribution hubs, warehouses, and manufacturers. Moving from one facility to another can take several months. It is a sort of inventory management that is known as pipeline inventory. 

Example: Shipping businesses and online retailers provide excellent models of transit inventory in action.  

Theoretical Inventory

This inventory aims to keep track of stock that can be fulfilled in the shortest amount of time feasible, without the need for additional waiting time. 

Example: If a hotel estimates that it will spend 10% on room cleaning but discovers that it has spent 15%, it is overspending. There is an additional 5% of theoretical inventory in this case. 

Excess Inventory

Inventory that has not been sold or is made up of raw materials but is still being held by a corporation is called surplus inventory. This also includes any inventory that isn’t needed right away but can be depleted later.

Example: Businesses selling umbrellas after the rainy season must store their products until the next rainy season. So, this stock has excess inventory. 

Also Read: The Advantages of Debt Financing For Your Business

Wrapping Up

Understanding the inventory allows one to maintain track of supplies and inventories. As a result, the company will have no trouble locating what it requires and when. It ensures that the appropriate amount of merchandise is purchased at the appropriate time. This operation benefits from processing inventory levels, preventing out-of-stocks, and lowering storage costs.


By indifi

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