Inventory Types
There 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 Examples
What 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.Wood on a construction site | Packaging materials |
Parts | Components |
Food ingredients | Product samples |
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 Concepts
Inventory is also a common business concept. For example, a hotel may view an unsold night in a hotel as service inventory.Service 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. |
Perishable inventory | Inventory that expires at a point in time such as food. |
Obsolete inventory | Inventory that is outdated or obsolete such as a case for an electronic device that is no longer on the market. |
Consignment inventory | A retailer that sells inventory that is still owned by the producer. |
Safety stock | Inventory held to guard against supply shortfalls or sudden demand surges. |
Service parts | Parts and components used to provide repair or maintenance services. |
Backordered inventory | Inventory that hasn’t arrived yet that has already been sold. |
Seasonal inventory | Stock used to meet seasonal demand. |
Excess inventory | 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. |
Cycle inventory | Inventory that a business replaces regularly such as shampoo in a drug store that sells many units a day. |
Transit inventory | Inventory that is in the supply chain or that is being delivered to customers. |
