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Types of inventory or stock for retailers and business

Updated on :  

08 min read.

Inventory is an intrinsic part of any business. If a company carries too much inventory, there is a risk of stock becoming obsolete. On the other hand, if the company does not maintain adequate inventory, there is a risk of losing a potential customer. Thus, inventory management is a crucial way to maximise sales.

Types of inventory

Effective inventory control is essential to boost the productivity and profitability of any business. You can practice better inventory management if you know the types of inventory you have. 

Below are the five types of inventory mostly used in business.

1.Raw material- Raw material is needed to convert the stock into finished goods. They are an integral part of any business as it helps a business to produce its goods. Thus, proper tracking and stocking of raw materials are important in managing inventories’ input, output, and usage.

Examples:

1. For a business selling wooden furniture- wood is a basic raw material.

2. For a small business selling fruit juices- fruits, water, and sugar are basic raw materials.

But, from retailers’ points of view, the raw material can be ignored as it purchases goods from suppliers and resales to the customers without any further assembly.

2.Work in progress- Work in progress is a type of inventory that is in an unsellable condition. It is in the process of being made sellable. WIP includes raw materials plus labour costs which are still in the production process. 

Example: For a medicine production company, manufactured medicine is a work in process until it is packed. Until the medicines are packed, they cannot be sold. From the retailer’s point of view, WIP can be ignored. Only manufacturers and assembly retailers need to worry about WIP inventory.

3.Finished Goods- Finished goods are products that are ready to be sold. 

Example- Any product ready to be sold to its customers is called a finished good such as electronic gadgets, FMCG products, clothes, etc.

Retailers mainly deal with finished goods. They mostly purchase finished goods from manufacturers and resell them to the local customers. They are the only type of inventory that is required to be managed by retailers.

4.Packing material- Packing material is a stock used to protect the goods from any damage, whether during storage or while supplying it to the customers. It includes goods such as bubble wrap, padding, cartons, packing chips, etc. Retailers mostly don’t worry about packing materials because they purchase packed goods from suppliers for resale.

5.Maintenance and operating supplies- Maintenance and operating supplies are stocks that are not directly used as a part of finished goods. They include goods such as:

  • Repair tools and equipment
  • Safety equipment
  • Cleaning supplies

All goods which are consumed or discarded during the production process fall under this category.