10 Types of Inventory & How to Manage Them

Several of the tables are later damaged when the space is reorganized, and so they are sent for repair. Decoupling inventory held by manufacturers to prevent production stoppages. Decoupling stock is a type of safety stock specific to manufacturers in that it prevents a stock out of any one item from grinding operations to a halt.

• A breakdown in any of the machines can derail the entire process, which is when decoupling inventory comes into the picture.
• Manufacturing inventory refers to all raw materials, components, work-in-progress goods, and packaging used to produce finished products.
• It can lead to increased storage costs, product obsolescence, increased inventory turnover and or dead stock, and losses on sales of discounted products.
• If you’re a bicycle manufacturer, all of the unfinished bikes in your shop could be considered WIP inventory.
• The aim is to identify what quantity of stock will be required throughout the year and what external factors may affect demand.

Inventory Management Is Essential

Inventory classification enables you to be laser-focused on the 20% of your inventory that generates 80% of your revenue. Because calculating raw materials inventory not only gives you an accurate picture of your current assets. That’s a ratio which represents how quickly raw inventory is used and replaced.

Theoretical Inventory

Work-in-progress goods are unfinished products that have begun to be assembled but are not yet ready for sale. Manufacturing businesses typically deal with more inventory than wholesalers or retailers. This is because all the parts and materials they use to produce finished goods also qualify as manufacturing inventory. Inventory analysis is the study of how product demand changes over time. This analysis helps businesses stock the right amount of goods and project how much customers will want in the future.

Excess Stock: Absolutely Everything You Need to Know

Here, the sugarcane, juice , and bagasse will all be treated as raw materials. Holding too little inventory can mean not being able to meet customer demand, delays in production and lost sales. If you run a small business, you may be able to meet your inventory needs with QuickBooks’ Excel Inventory Template. By using this template, you can employee evaluation form templates track products and raw materials by quantity and unit price. Flowspace’s platform provides real-time inventory tracking, so brands can always see what products they have in stock and where they are located. This level of real-time inventory visibility helps avoid stockouts and ensure that they can fulfill orders quickly and accurately.

Service industry

If your business manufactures laundry detergent, your primary packing material is the box or bottle that customers pull off the grocery store shelf. These goods are maintained by a business to meet demand and fulfill its purpose. Without proper inventory, the business may not know the amount of product (or services) they have on hand and, therefore, won’t be prepared—or even have the capability—to fill orders. The usual causes of excess inventory include inaccurate sales forecasts, mismanaged inventory, a large amount of returned or canceled orders, or an unforeseen decrease in demand. For example, a mechanic typically sells things like gaskets as part of a job. Knowing what type of inventory your business carries can help you manage it effectively.

Inventory Replenishment

It requires more work in process inventory, precise demand forecasting, and robust relationships with suppliers to ensure the timely delivery of inventory items. One key strategy is decoupling inventory, which involves maintaining a buffer stock to protect against production stoppages between different stages of the manufacturing process. Effective inventory management software is crucial in logistics and shipping industries, impacting cost efficiency and customer satisfaction.

The nature of retail businesses means inventory turns over faster and there’s a high potential for unexpected surges in demand. Adopting advanced inventory accounting methods and continuous inventory analysis increases profitability and supports sustainable business growth in competitive sectors. Each category has a distinct role in the supply chain and contributes differently to business operations and financial health. With our free template, tracking your inventory in Excel becomes a simple and easy process. All you need to do is input the details of your stock, and the template will do the rest. This article takes a deeper dive into the definition of inventory, types and examples of inventory, and why understanding inventory is crucial for your business.

To make that possible, businesses need a single space to post information related to company happenings, processes, and statuses. The Sling newsfeed provides a place that is easily accessible to all employees. Companies are able to share updates and news with various groups of people, keeping everyone on the same page and bringing teams together. In simpler terms, theoretical inventory is the minimum inventory needed for a product to move through the manufacturing system without waiting. Inventory in transit must be accounted for when it comes to supply and demand, along with the timelines for those demands to be met.

There are other types as well which are maintained as a precautionary measure or for some other specific purpose. Work in progress refers to any inventory that is in the production stage but isn’t ready for sale yet. In a cupcake-making business, this could include cupcakes that have been baked but not frosted yet, and stored in the freezer for future use.

Many businesses have almost all of these types of inventory simultaneously. Safety stock is additional inventory kept in stock in the case of unexpected delays from suppliers. It protects against stockouts or delays in raw material, finished foods, or packaging inventory. This is inventory that consists of every item in the supply chain that’s in-transit.