Managing inventory is never an easy task but it is made much simpler with effective inventory management systems.
To this end, managers typically use a four-category classification system for the different types of inventory a firm might need to track.
We will discuss those four types of inventory as well as how an inventory management system can help effectively coordinate the unique logistics attached to each category.
Raw Materials
While this classification might seem quite self-explanatory on the surface, that doesn’t do justice to the critical nature it serves for many companies. Raw materials management is literally the lifeblood of any production line and inventory management systems often use everything from tracking codes and labels to software that helps anticipate a location’s future needs in terms of materials. From managing stock on hand to anticipating future needs, raw materials inventory management is the critical bridge between production and retail. As such the necessity for effective administration in this area cannot be understated.
Unfinished Products
Time is money and nowhere is this truer than with unfinished products waiting for that last stage of production to get them on the road. Why is managing unfinished products critical to a company’s bottom line? Because time, labor, and material costs are already sunk into it, no matter what it is, and the longer it sits around the more it costs in lost market opportunities as well. An optimized inventory management system minimizes the amount of time a product will sit in storage and will get it through to the final stages necessary to bring it to market and monetize it.
In-Transit Inventory
Moving a product from the factory floor to the transit system to get it to market is quite an accomplishment itself but the inventory manager’s job doesn’t end there. In-transit inventory often accounts for a substantial portion of any company’s anticipated revenues with Inbound Logistics estimating this percentage at anywhere from 5% to 20% depending on the company’s market and current factors pertaining to that.
Cycle Inventory
Cycle inventory, also called cycle stock, refers to that product which moves from the product lines directly to consumers and often has limited to no storage times associated with them. As you can imagine, this is an inventory chain that moves very quickly thus necessitating an equally responsive inventory management system.
Other Types to Consider:
Safety Stock
This is often an inventory level maintained by a company for one reason or another in order to achieve objectives such as smoothing out market fluctuations in demand or even to keep a factory running and employees working during times of lax demand.
Anticipatory Stock
Anticipatory or safety stock is often kept by companies that expect a large demand for their product in the marketplace. Other reasons for maintaining safety or anticipatory stock include future rises in input material prices or even the inability of a firm to obtain those inputs at all due to one economic condition or the other.
