An important part of any business is proper inventory management. Inventory can be a term used to represent items that a business will have available for sale or on hand at a given point in time. Each type of inventory can have an alternative name and its own method of being tracked and managed by your business.

The four main types of inventory are as follows: Raw Material, Work In Process (WIP), Finished Goods Inventory, and Maintenance, Repair, and Operating Supplies (MRO).

  1. Raw Material Inventory

This refers to the types of items that will be processed further down in the production line. These items are materials that go through an initial process like cutting, baking, etc. before they become something else (a finished good). For example, assume you make pies; flour would be considered raw material because it goes through many steps before becoming a finished good (a pie baked in the oven).

Raw material inventory counts can be done manually or semi-automated. The costs associated with this type of inventory are the materials that need to be purchased, stored, and tracked to ensure they are not wasted (assuming you run out of raw material).

  1. Work In Progress Inventory (WIP)

This refers to all items that have entered your production system but have not yet become a finished good. Once an item enters your production system, it is considered work in process until it becomes a finished good; WIP inventory accumulates as more items enter the line.

For instance, assume you make pies; after the flour is bought, measured, mixed, etc., it becomes a dough that must go through any number of processes before being rolled into sheets, cut into circles, and then becomes a pie. The costs associated with this type of inventory are all the labor, processes, energy, and others used to create the product.

  1. Finished Goods Inventory

This refers to items that have completed their journey through your production line and are ready for sale. Finished goods can also refer to items in business storage, in cases where they are held until sold or needed. For instance, if you make pies, once the dough is cut into circles/squares, then baked and cooled, it becomes a finished well (a pie). The costs associated with this type of inventory are any materials, labor, processes, and others required to put the item in its final state before placing it into storage or onto shelves to sell.

  1. Maintenance, Repair, and Operating Supplies (MRO) Inventory

This refers to items used for the upkeep and maintenance of equipment, facilities, or vehicles. MRO inventory is often required by law, in cases where some employees must have certain supplies on hand at all times while on duty. For instance, in a factory that produces pies, an employee may be required to have a screwdriver and wrench on them while working.

Gloves and pens are other perfect examples that would fall under MRO. The costs associated with this type of inventory are the purchase price of supplies and any storage expenses (for keeping it safe from theft or damage).

The Importance of Proper Inventory Management

Inventory management is important in every business; it allows for proper resource allocation and use. Without effective inventory management, businesses would be over/understaffed, under/overstocked, and generally inefficient with the resources they do have available to them. Why carry more than you need? Why order more than can be sold? Why pay for space you’re not using? All of these questions and examples point to a problem that could be solved with proper inventory management.

Automating Inventory Management

The good news is that inventory management can be simplified through the use of automation. Automation through inventory management software allows for real-time inventory counts to be carried out, accurate ordering to take place, and an efficient warehouse environment to be constructed. Businesses using proper inventory management software can accomplish these tasks while keeping costs down.

Inventory tracking software comes with many features, including automated purchase orders, re-ordering options, location tracking/management, item labeling/listing capabilities, among others. The best part? Inventory Management Software frees up employees from manually doing all of these things, allowing them to focus on their true job functions (providing value).

Proper inventory management is essential in the business world. With so many products coming into your store, it can be difficult to keep up with what items are selling and which ones need to go back on the shelves. A good inventory strategy will help you save money, maximize sales opportunities, and avoid a messy supply closet that takes hours of sorting each week.


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