Inventory TypesThere are four basic types of inventory as follows. These categories can be used as a test to determine if an item is inventory or not.
Raw materials - basic materials, ingredients, parts and components used in products and services
Work-in-progress (WIP) - partially completed products
Finished goods - products that are ready to be sold
Maintenance, repair and operations (MRO) - supplies necessary for the maintenance, repair, and support of production processes and facilities
Inventory ExamplesWhat is considered inventory depends on the nature of your business. For most businesses a computer isn't inventory because this is capital that you use to produce value. However, if you're a retailer or manufacturer of computers then this is inventory. The following are examples of items that are considered inventory in a particular context.
In order to be considered inventory an item must be used to produce goods and services. For example, a cleaning product used in a restaurant is inventory but a cleaning product used in a back office is a supply.
Wood on a construction site
Cleaning supplies in a factory
Cakes in a cake shop
Partially completed products on an assembly line
Small tools used in production
Computer parts in a data center
Stock such as boxes of shoes in an ecommerce fulfillment center
Soap used to stock rooms in a hotel
Kimono in a kimono rental shop
Clothes in a clothing retail shop
Cake decorations in a cake shop
Goods in transit until they are owned by the customer
Excess inventory such as unpopular colors of a product that won’t sell
Cotton fabric in a textile factory
Glass bottles in a recycling facility
Soybeans harvested from a farm
Wood logs at a sawmill
A partially completed painting in an artist’s studio
A partially constructed house owned by a house builder
Lubricants in a repair shop
Fasteners such as screws in a craft shop
Air conditioning parts owned by a HVAC repair person
Safety equipment in a factory such as a fire extinguisher
Receipt paper in a retail shop
Antiques in an antique shop
Fuel in a airline’s airplane
Inventory ConceptsInventory is also a common business concept. For example, a hotel may view an unsold night in a hotel as service inventory.
Next read: Types of Inventory
A unit of a service that can be sold that expires. For example, a seat on a flight. Not a true type of inventory but an important business concept.
Inventory that expires at a point in time such as food.
Inventory that is outdated or obsolete such as a case for an electronic device that is no longer on the market.
A retailer that sells inventory that is still owned by the producer.
Inventory held to guard against supply shortfalls or sudden demand surges.
Parts and components used to provide repair or maintenance services.
Inventory that hasn’t arrived yet that has already been sold.
Stock used to meet seasonal demand.
Inventory that hasn’t been sold in the expected period of time. For example, unpopular colors that remain on the shelf as other colors sell out.
Inventory that a business replaces regularly such as shampoo in a drug store that sells many units a day.
Inventory that is in the supply chain or that is being delivered to customers.