Inventory management includes all activities of replenishment and forecasting used to ensure that a business has all the materials it needs to complete product orders and keep customers happy.
There are two control procedures that businesses typically use to track inventories: order point systems and materials requirement planning (MRP). Understanding the different types of inventory in a warehouse will help businesses understand when to order, how much to order, and the most cost effective supply source for each inventory item.
There are four basic types of inventory that businesses must track:
Raw materials
Raw materials make up the bulk of the inventory in a warehouse. They are the materials that will be put together to make the finished product and are often tracked by materials requirement planning. A computerized MRP allows assemblers to insert the amount of raw materials used by measurement rather than by pieces; for example, if an assembler is welding sheet metal, the amount of sheet metal is recorded in inches, not pieces.
In process inventory
In process inventory is work that has begun production in a manufacturing company but has not yet been completed. It is important for this type of inventory to be tracked because the value of the inventory must be tracked in the same way as raw materials and finished goods.
In process inventory is also often tracked with MRPs. The assembler who used the sheet metal to create the widget shell, for example, will now use screws to finish the product. These screws are inventory and need to be tracked as such, but they are not being created on site.
Finished products
When a product is finished, it becomes finished product inventory. This type of inventory is tracked with the order point system. These systems send signals to replenish when inventory is low. The finished project is ready for sale, so the system alerts the assembler to make more when the inventory reaches a pre-set low count. The process begins again with raw materials and MRP inventory control.
Maintenance inventory
The final type of inventory, maintenance inventory, covers any product necessary for maintenance of the building. Cleaning supplies, light bulbs, nails, and any other materials that need to be replenished for the maintenance of the business fall into this inventory category. A simple order point system is the most effective control system to keep the building running smoothly.
If you would like more information regarding types of inventory and using effective control systems, contact us today.
