Types of Inventory | Guide to Inventory (2024)

FAQs

What are the 4 types of inventory? ›

There are four different top-level inventory types: raw materials, work-in-progress (WIP), merchandise and supplies, and finished goods. These four main categories help businesses classify and track items that are in stock or that they might need in the future.

Inventory refers to any raw materials and finished goods that companies have on hand for production purposes or that are sold on the market to consumers. Two types of inventory are perpetual and periodic inventory.

In this article we'll dive into the three most common inventory management strategies that most manufacturers operate by: the pull strategy, the push strategy, and the just in time (JIT) strategy.

1. FIFO — first in, first out. FIFO is one of the most common inventory management methods used in stock operations. This technique helps ensure that the oldest products are used first, reducing the chance of spoilage or obsolescence.

FIFO and LIFO.

LIFO and FIFO are methods to determine the cost of goods. FIFO, or first-in, first-out, assumes the older inventory is sold first in order to keep inventory fresh. LIFO, or last-in, first-out, assumes the newer inventory is typically sold first to prevent inventory from going bad.

Inventory models deal with the time at which orders for certain goods are to be placed, and the quantity of the order. The research problem concerns ways of optimizing these decisions, taking into account the cost of obtaining the goods, the cost of holding a unit in inventory, and the cost of shortages.

FIFO is the most logical choice since companies typically use their oldest inventory first in the production of their goods. Deciding between these two inventory methods as implications on a company's financial statements as this decision impacts the value of inventory, cost of goods sold, and net profit.

ABC analysis is an inventory classification strategy that categorizes the goods into three categories, A, B, and C, based on their revenue. 'A' in ABC analysis signifies the most important goods, 'B' indicates moderately necessary goods, and 'C' indicates the least essential inventory.

What is the ABC of inventory? ›

ABC Analysis classifies inventory items into three categories based on their value and importance to the business: A (high-value items), B (medium-value items), and C (low-value items). The A items — typically the most expensive and most important — should be managed with extra care and attention.

Inventory is a current asset account found on the balance sheet, consisting of all raw materials, work-in-progress, and finished goods that a company has accumulated. Ending inventory may be calculated using the FIFO method, the LIFO method, specific identification, and the weighted average method.

Companies should pay equal attention to all five inventory types: raw materials inventory, work-in-progress (WIP) inventory, maintenance, repair, and operating (MRO) inventory, finished goods inventory, and packing materials inventory. An adequately managed inventory keeps a business humming along smoothly.

Four popular inventory control methods include ABC analysis; Last In, First Out (LIFO) and First In, First Out (FIFO); batch tracking; and safety stock.

ABC analysis is a method in which inventory is divided into three categories, i.e. A, B, and C in descending value. The items in the A category have the highest value, B category items are of lower value than A, and C category items have the lowest value. Inventory control and management are critical for a business.