What is Inventory Management? The 13 types with examples

What is Inventory Management?

Inventory management is the systematic handling of sourcing, storing, and selling inventory utilized or distributed by a company. Inventory encompasses both raw materials (components) and finished goods (products).

Inventory management oversees the entire flow of goods from procurement to sale, ensuring that you always have the right stock and quantities available in the right location at the right time.

Understanding the different types of inventories is vital for enhancing customer relations, cash flow, and profitability, while also minimizing losses due to wasted inventory, stockouts, and restocking delays.

Explore the 13 types of inventories and their examples:

1. Raw materials:
   • Essential input products required by a company to manufacture its goods.
   • For example, when the product is completed, the raw elements such as the oil needed to make shampoo, are usually indistinguishable from their previous state.
2. Components:
   • Materials utilized by a company to manufacture and finish products, which remain identifiable after the product is completed.
   • For example, screws remain recognizable after the product is finished.
3. Work In Progress (WIP):
   • Includes raw materials, labor, and overhead expenses for items in various stages of the manufacturing process.
   • For example, if a company sells coffee then the bags, labels., coffee beans and shipping boxes are part of a company’s WIP inventory.
4. Finished goods:
   • Products that have undergone necessary manufacturing processes and are ready for use or sale.
   • For example, a fabric factory may manufacture materials such as cotton or silk that can be used in clothing.
5. Maintenance, Repair, and Operations (MRO) Goods: 
   • Components utilized in the manufacturing process but not included in the final product.
   • For example, safety equipment, gloves, computer equipment, etc.
6. Packaging and packaging materials: 
   • Materials used for the containment and transportation of supplies.
   • For example, paper, cardboard cartons, shippers, etc.
7. Safety Stock and Anticipation Stock:
   • Additional inventory held by a company to address unexpected situations is safety stock. Anticipation stock is made up raw materials or completed goods that a company buys in response to sales and production trends.
   • For example, pumpkins are in high demand throughout Halloween; therefore, the store would order more stock to meet demand.
8. Decoupling Inventory:
   • Inventory set aside for each production line to prevent production slowdowns or stoppages.
   • For example, in a bakery the decorators keep a store of sugar roses to decorate cakes. So even if there are no materials to create more sugar roses, the decorators can fulfil cake orders.
9. Service Inventory:
   • Represents the amount of service a company can deliver within a specific timeframe.
   • For example, in each week, a hotel with ten rooms has a service inventory of 70 one-night stays.
10. Transit Inventory:
    • Goods shipped by a seller but not yet received by a buyer. Also known as transportation inventory or goods in transit.
    • For example, ownership is passed to the buyer as soon as the ships the items from the warehouse, which is referred to as FOB shipping point.
11. Theoretical Inventory:
    • The minimum stock required by a company to conduct operations without delay.
    • For example, a restaurant’s theoretical inventory of salad lettuce may be 100 bags a week.
12. Obsolete Inventory:
    • Products nearing the end of their life cycle and not expected to be sold.
    • For example, if a ma makes 800 cookies but only sells 600 the day before expiry, the remaining 200 are obsolete inventory.
13. Cycle Inventory:
    • The amount of inventory on hand to meet typical demand over a specific period.
    • For example, as a restaurant uses its last 500 paper napkins, the new refill order arrives. The napkins fit easily in the dedicated storage space.

By understanding these inventory types, medical device companies can effectively manage their inventory to optimize operations and ensure seamless supply chain management. At BioTouch, we provide tailored inventory management solutions to meet the unique needs of medical device companies, enhancing efficiency and profitability.