The presentation is about types, functions, need, importance and disadvantages of Inventory

1. INVENTORY MANAGEMENT
Session 2
Types of Inventory
Inventory Management - Functions
Need & Importance
Disadvantages

3. Inventory is generally categorized as :
• Raw Materials
• Work-in-Progress
• Finished Goods
 Raw Materials Inventory are unprocessed materials used to produce a good. Eg. flour, wood, crude oil, sugar
cane, grains, cotton, jute, coir, etc.
 Work-in-Progress Inventory is the partially / semi finished goods, which is further to be processed or waiting
for completion and resale. Work-in-Progress inventory is otherwise known as inventory on the production
floor. Eg. Spare parts and hardware components for electronic appliances and furniture and vehicles, pizza
base, half cooked food, batter, etc.
 Finished Goods Inventory are products that have completed production and are ready for sale and are for
direct consumption which doesn’t need further more processing. Retailers typically refer to this inventory as
‘Merchandise’.
5 Basic Types of Inventory :
• Raw materials
• Work-in-Progress (WIP
• Finished goods
• Maintenance, Repair & Operations Supplies
(MRO)
• Packing Materials
TYPES OF INVENTORY

4. MRO (Maintenance, Repair and Operating Supply) Inventory are used for free flow in production and plant
maintenance and can be items such as maintenance supplies, spare parts, and consumables used in the production
process. Eg. oils, lubricants, gloves, safety gears & equipments, fire extinguishers, spanner, screw driver, hammer &
nails, etc.
Packing Materials Inventory includes any items the business used to pack the products you sell. Two types –
Primary Packing & Tertiary Packing. Eg. Cardboards, gunny bags, plastic sheets, cartons, crates, bubble wrap,
thermacol sheets and balls, etc.
Labelling Materials Inventory also a part of packing inventory.

5. Buffer Inventory
Also called Buffer Stock or Safety Stock.
Buffer Inventory is used to reduce the incidence of stock-out situations in sales and thus provide better customer
service.
Anticipation Inventory
Businesses purposely keep more inventory than needed to meet current demands.
Cycle Inventory
Cycle stock / working stock / operations stock are the turns over inventory, as new items replace older ones that are
sold.
Decoupling Inventory
A ‘decoupled’ inventory consists of inventory stock set aside in the event of a slowdown or stoppage in production.
Service Inventory
Refers to how much service a business can provide in a given period. Eg. A hotel with 10 rooms, for
example, has a service inventory of 70 one-night stays in each week.

6. Transit Inventory / Pipeline Inventory
Refers to the goods or supplies that has already been shipped from the supplier’s warehouse but not yet delivered
to the buyer.
Dead Inventory / Dead Stock
Its a term used to describe merchandise that was never sold to or used by consumers before being removed from
sale, usually because it was outdated.
Theoretical Inventory / Book Inventory
The least amount of stock a company needs to complete a process without waiting. Its the minimum amount of
inventory a company needs to perform its business.
Excess Inventory
This can be any goods or raw materials that are unused. If excess material is unusable in another product or
campaign, it may become dead inventory or obsolete inventory.
Reverse / Sales Return Inventory
Refers to all goods and items returned by customers. These inventory also comes under Dead Stock. Eg. defective
products, damaged goods, wrong items, lately delivered products, wrong customers, wrong deliveries, etc.

7. NEED / IMPORTANCE OF INVENTORY
* To Even out Supply Chain Imbalances
* To Ensure High Speed and Zero Defect Supply Chains
* To Consolidate Products as per Customer or Location
Result – Increased Customer Satisfaction and Reduced
Transportation Cost
* To Achieve Economies of Scale
Meaning - saving in costs gained by an increased level of
production
* To Store the Excess Produces.
Reason – firms produce large batches of goods to make
full use of capacity to reduce fixed costs
* To Reduce Response Time to Market
Result – Lead Time is minimized
Value Added Processing
* To Achieve Postponement Strategy
Result – firms produce only generic products
* To Ease Inventory Management as Aggregate
Forecasting is more accurate
* To carry out Pricing and Labeling Activities instead of
doing at Point-of-Sale
* To Stockpile the products needed for next season
Reason – Replenishment will be low during off season

8. FUNCTIONS IN INVENTORY MANAGEMENT
o Market Study: procuring raw materials in the best possible way
o Ordering: of finished products from a vendor or raw materials
o Handling: tracking incoming items or materials, including quantity, type, etc.
o Storing: products or materials must be safely kept in a safe, yet easily accessible environment, such as
an on-site warehouse
o Processing or Selling: turning the raw materials into finished products or selling ready-made products
from other suppliers to customers, either B2B or B2C.
DISADVANTAGES
 Over stocking
 Dead stock / obsolete stock
 Occupies Space
 Need for a Warehouse
 Damage / Accidents