4 Types Of Inventory
If there is one important thing that is true for inventory, it goes through many channels before it reaches the consumers. To run your business by effective way, it is important to understand the four different types of commonly used inventory and the steps that go through them.
What are the 4 types of inventory?
The four most commonly used inventory types are raw materials, work in progress (WIP), finished goods, and maintenance, repair, and overhaul (MRO). Once you know the type of inventory you have, you can make better financial decisions for your supply chain. This includes choosing the best inventory management software to maintain the list.
- Raw materials
The raw materials you need to turn your inventory into a finished product are raw materials. For example, leather would fall into this category for making belts for your company. Or, if you sell artificial flowers for your interior design business, used cotton will be considered the raw material.
- Work progress
As the name implies, the inventory being worked on is Work-in-Progress (WIP). In terms of cost, WIP includes raw materials, labor, and overhead costs. Think of the inventory under this category as part of the bigger picture of the product. If you sell medical supplies, the packaging will be considered WIP. This is because the drug cannot be sold unless it is stored in suitable packaging. This is literally a work in progress.
- Finished goods
Of all the inventory types, the most straight forward is inventory. The inventory you have listed for sale on your website? They are manufactured goods. Any product that is ready to be sold to your customers falls into this category.
- Overhaul / MRO
Also known as maintenance, repair, and operating supplies, MRO inventory is all about small details. This is the inventory that must be collected and sold, but not the product itself. For example, gloves would be considered an MRO for handling the packaging of a product. The basic office supplies, such as pens, highlighters, and paper, will be similar.
Depending on your business description, this could be in inventory storage, at a supplier, or in transit out for delivery.