2023W T2_INT 1123

Weekly Exercise #5

Importance of Inventory Management and Different Types of Inventory

Inventory management is the process of placing orders, tracking, and utilizing all of the company's
inventory. Inventory management has an impact on every area of the organization, from storage or warehousing
expenses to the company’s ability to complete orders reliably and on schedule. It also involves a complex series of
processes to do manually. It takes time, and if mistakes are made, they can have a long-lasting negative impact on
the business. With good inventory management, it can assure smooth operations for the business because it
would help determine the right quantity of needed goods, whether raw material or finished goods and avoid out-
of-stock issues or your cash investments being tied up due to overstocking. A good inventory management strategy
can give real-time inventory to avoid issues with inventory or stocks. Too little inventory or out-of-stock inventory
when and where it is needed can result in dissatisfied and complaining customers. On the other hand, a huge
inventory can result in additional unnecessary expenses to the business due to storage costs, insurances, and has a
risk of obsolescence, theft, spoilage, loss, or damage to the goods.

Inventory management has 10 different types namely:

1. Raw material
- These are the parts or components being used in the processing or manufacturing of a finished good.
2. Work in progress
- Goods that are still being put together, processed, converted, and produced.
3. Finished product
- Goods that have been finished and are ready for selling and use.
4. Consumables
- Usually refers to supplies or items being used to keep and maintain the manufacturing plant
operating smoothly and efficiently.
5. Service, repair, and replacement
- Aftermarket parts that are used to keep the current product in working condition.
6. Service inventory
- Guarantees timely delivery.
7. Pipeline inventory
- These are the goods that are in transit between the manufacturer's and the customer's locations.
8. Contingency inventory
- Inventories used during unexpected and disastrous occurrences.
9. Safety stock
- This is the inventory to guarantee there’s enough supply until new stock arrives
10. Efficient procurement inventory
- This is the inventory procured during special or unusual opportunities and get goods at a reduced
rate.