Types & Functions of Inventory

Types of Inventory:

There are three types of businesses such as trading or merchandising, manufacturing, and service. Out of these, services are not inventorial. Here, the first classification of inventory is based on the nature of business – Merchandise and Manufacturing Inventory.

Merchandise Inventory:

• It is the inventory of trading goods held by the trader.

Manufacturing Inventory:

• It is the inventory for manufacturing and selling of goods. Based on the value addition or stage of completion, the manufacturing inventories are further classified into 3 types of inventory – Raw Material, Work-In-Progress, and Finished Goods. Another type is MRO inventories which are to support the whole manufacturing and administrating operation.

Functions of Inventory:

• To meet anticipated demand.
• To smooth production requirements.
• To decouple operations.
• To protect against stock-outs.
• To take advantage of order cycles.
• To help hedge against price increases.
• To take advantage of quantity discounts.