Inventory is used for a variety of reasons and there are several types of inventory. As we’ve mentioned, inventory is tied up capital and should be well recorded and tracked to avoid having too much or too little.

It’s easier to track inventory if you know all of the types, so below you will find a list and a description of some of the types of inventory used in business.

Finished Goods Inventory

Finished goods are the products that you sell to your customers. Finished goods can be products that you manufacture yourself, products you assemble yourself from parts ordered from suppliers, products you receive from another warehouse already assembled, or whole products you order from a supplier. Whatever type of finished good it is, however, its inventory is held at all times so that you can respond immediately to customer orders.

Raw Materials Inventory

These are the materials or components that you use to manufacture or assemble your finished goods. Hard drives and motherboards, for example, are raw materials that can be used to build a computer. Battery packs, chargers, and toothbrush heads are the raw materials that you need to make electric toothbrushes. Etc. You would keep raw materials in your inventory in order to be ready to create a new set of finished goods while you wait for a shipment from your suppliers.

Work-In-Process Inventory

These are items that are in transit. They have been removed from the raw materials inventory but have not yet arrived at the finished goods inventory because they are in the process of being assembled. Work-in-process inventory items are those that are not technically sitting in an inventory location – they’re either being actively worked on or are partially processed and waiting to be fully processed into the finished goods inventory location.

Pipeline Inventory

Pipeline inventory is also inventory that is in transit. These items have left your finished goods inventory location and are either being prepared to ship or have already shipped to your customers. This type of inventory, although it is destined to leave or has left your location, is still considered tied up capital until the items have been paid for.

Pipeline inventory may also be any inventory that is being moved from one of your warehouses to another or raw materials that you have paid for and that are on their way to you.

Buffer Inventory

The term “buffer inventory” refers not to the inventory type but to its purpose and therefore this type of inventory is both raw materials and finished goods. It is the inventory that you keep in stock to guard against uncertainties – unreliable lead times, unforeseen delivery delays, etc. With buffer inventory, you can ensure that your customers’ demands can be met even while you wait for a new shipment from your suppliers.

For more information on parts inventory management and how to better manage your inventory, please contact Acumen Information Systems today.