Inventory consists of raw materials used to produce goods and the end products that are ready to be sold to customers. Inventory is also known as stock and the two terms can be used interchangeably. Inventory is considered to be a current asset and is part of the balance sheet. Maintaining optimum inventory levels is vital so that there isn’t overstocking or understocking.
Types of inventory
There are four major types of inventory and they are as follows.
- Raw materials inventory
Raw materials are used to develop and manufacture products so they can be converted into finished goods. Raw materials inventory is the total cost of the materials used to develop the finished product.
For example, the raw materials used to produce a simple lipstick include oil, wax, pigment, and alcohol. When the product is finished, it is difficult to discern exactly which raw materials were used to make the lipstick.
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- Work-in-progress (WIP) inventory
WIP inventory includes items that are currently stocked because they are required in the current production. These products are unfinished at the moment and so cannot be sold to the customer but they are in the process of eventually getting completed. For example, businesses that offer customizable products, including ones that are handmade, have WIP inventory.
- Finished goods inventory
Finished goods are products that have been completed and can now be sold to the customer. Finished goods are packaged according to how fragile they are and their durability. Finished goods inventory is how many finished products you have stocked from which customers can buy. Examples of finished goods include laptops, dolls, gadgets, clothes, chairs, jewellery, watches, rubber bands, bags, shoes, and accessories.
- Maintenance, repair and operations supplies
MRO goods are equipment, materials, and supplies that are a vital part of the production but they aren’t directly a part of the finished goods. Examples of MRO supplies include gloves, office supplies, computers, industrial equipment, and repair tools. While these supplies aren’t used in the manufacturing of the end-product, they are important for the production of the finished goods.
The other types of inventories include packing materials, transit inventory, safety stock, book inventory, decoupled inventory, service inventory, safety stock, excess inventory, cycle inventory, and anticipated inventory.
Why keeping tracking of different types of inventories is important
As a business you deal with different types of inventories. Whether you are a small business or an expanding one, you need a robust way to be on top of your inventory. This is where inventory management comes in. Inventory management enables you to keep track of the types of inventories that you have and gives you the following benefits.
- Inventory management reduces complexity because you know the current stock, when to stock, and what to stock. This maximizes efficiency.
- Managing inventory levels aids in early problem detection. Problems can arise when you have way too much inventory to deal with or you have too much on your plate.
- Early detection of inventory-related problems can be solved easily before it turns into a disaster. If problems arise later, it becomes difficult to get to the root fast which means a delay in efficient management.
- Stock management of different inventory types allows you to detect theft if it occurs or discrepancies that lead to inefficiencies.
- Properly managing your inventory levels ensures you save on your warehouse costs as you will know exactly when, how, and where to keep your stocks for maximum benefits.
How inventory management solutions help businesses organize the stock
Inventory management can be tedious when done with inefficient processes. Imagine managing inventory when you have 10 product lines and 50 products being sold in each product line. It is simply an impossible task when you want to do it manually. If you want to unleash the true potential of inventory management, then you should turn to using inventory management software. A software solution can make inventory management easier, faster, and with less effort-inducing. Here is how it does so.
- Information at your fingertips
The stock levels should be just right. You don’t want to stock too many perishable items but you don’t want to understock them either. This holds true for any type of inventory because overstocking and understocking is not ideal. A software solution gives you instant information about your current stock levels and informs you when the stock levels drop below a certain threshold. It will inform you about the real-time stock levels so you can decide when exactly to replenish your stocks that will be low soon. This information ensures you don’t waste time manually checking which can be highly time-consuming.
- Reports for better decisions
Software solutions for inventory management produce reports that can be of help. Storing inventory is costly and if you don’t do it properly you can waste tons of money. When you use a software solution for managing inventory, you receive timely reports or generate reports when you want to know the position of your stocks. These reports can help you make better decisions on time thereby boosting efficiency among your inventory-related processes. For example, reports can unveil insights such as which goods are in high demand and which goods yield high profits. Software solutions for stock management allow you to track and store information for later use so you can make better decisions in the future too.
How TallyPrime can help?
TallyPrime offers a flexible stock management option for easily managing your business inventory. The bill of material features enables you to keep track of various components required to make a finished product. You get insightful reports such as aging analysis reports and stock summary. You can keep tabs on the costs such as landing cost, production cost, procurement cost, and order cost, along with the revenue using the cost tracking feature. Businesses with more than one product line can easily manage inventory by organizing the stock into categories, locations, groups, and so on. TallyPrime enables businesses to maintain optimum stock using re-order levels.
Top features of TallyPrime as an inventory management software
- Organize stock into groups, categories, locations etc.
- Integrated accounting and inventory data
- Multiple stock valuation
- Warehouse/location management
- Manufacturing
- Manage inventory batch-wise and lot-wise
- Invoicing
- Ease of handling exceptions in inventory
- Bill of materials
Accurate inventory reports - Manufacturing outsourcing and insourcing
- Manage stock from/far third party
- Job/project-wise costing
- Online business reports
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