Types of Inventory : The 4 Different Buckets to Know

The 4 types of inventory you can find in many organizations are described here. Different types of inventory need different management approaches.

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Inventory Management Definition

✏️ Transcript of the Video

No Inventory equals No Business.

In the past, there have been many managers who have pushed the concept of low inventory too much, putting companies and customers in crisis.

The key concept is that it is necessary to manage the inventory at the lowest possible level but always guaranteeing the satisfaction of the customer’s demand.

The first step is to understand the different types of inventory in depth.

▶ Raw Materials

Here is the first type of inventory.

We ideally start from the entrance to the production process. In this area there are raw materials, components and subassemblies.

Typically these items are very expensive and you should tend not to have many. On the other hand, we must avoid stopping the production process due to lack of material.

▶ Work In Process

The second type of inventory is Work in Process, also called WIP.

The goal is to have a lean production process in order to have this part of inventory as low as possible, guaranteeing the satisfaction of the customer request.

This is where tools like batch reduction, cell design, SMED, TPM and other lean tools can help.

▶ Finished Goods

The third type of inventory is the finished goods warehouse.

Typically this is the most expensive of the inventory types as there are all the production costs in the finished product.

Inventory management of this type is very critical and the sales and forecasting department plays a vital role in the management.

▶ Auxiliary and Maintenance Materials

The fourth type of inventory is the auxiliary and maintenance materials warehouse.

In this container, there are the spare parts of the machinery, the oils, the protective devices of the employees, the office materials, and everything that contributes to keep the company going.

Typically this fourth type of inventory does not contribute significantly to the company’s total inventory.

▶ Conclusions

The inventory can ideally be divided into 4 different types. Each of these types must have different management methods optimized for the type of inventory to be controlled.



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