• Inventory Management  |  Warehouse Management  | 
  • 3 Min Read
  • Understanding the Four Types of Inventory

    Dustin Caudell

    Written by Dustin Caudell
    Wed, Oct 07, 2015

    Google Logo
    Voice picking and mobile devices can help managers distinguish different types of inventory.

    Warehouse management is responsible for tracking inventory through the supply chain. Inventory overseers may have to account for product movements handled by warehouse workers, delivery drivers, manufacturing employees and suppliers. Warehouse managers must also determine the inventory staff should pick and when merchandise is ready for distribution.

    RELATED: Watch this video to see how much more efficient your warehouse would be with voice picking as compared to screen and keyboard picking »

    Inventory has different classifications at different points in the supply chain. It is the managers job to account for each product and what stage it is currently in. There are four types, or stages, that are commonly referred to when talking about inventory: 1) Raw Materials, 2) Unfinished Products, 3) In-Transit Inventory, and 4) Cycle Inventory. 

    Raw Materials

    Company warehouses don't just house finished products. Some manufacturers use distribution centers to store raw materials for their production lines. Inventory management software must distinguish between items on shelves meant for customers and materials allocated for business use.

    Integrating inventory management software with a company's ERP allows manufacturing teams and warehouse workers to communicate inventory activities in a central source. Programming automated data collection processes to distinguish between stored goods makes it simple for employees to track different types of materials through a warehouse.

    Warehouse workers must monitor raw materials to make sure the operations can continue. This doesn't just mean manufacturing assets. Inbound Logistics shared the example of a company that had to halt its supply chain because it ran out of shipping pallets. Managers should track any business tool critical to operations in a central system. Workers can label pallets, vehicles and other assets with bar code data collection tags to keep them under constant supervision.

    Unfinished Products

    Once raw materials move to manufacturing, they may return to the warehouse before they are ready to sell. Workers may confuse unfinished products stored on warehouse shelves for merchandise ready for delivery. Employees need to use automated data collection devices to update the status of each piece of inventory.

    Mobile devices create simple processes for classification alterations. Employees can use barcode scanners, smartphones, tablets or voice picking technology to communicate the inventory's progress in the business cycle. Outfitting different departments with uniform tools prevents communication errors. As materials move between the warehouse and manufacturing, mobile data collection procedures limit mistakes.

    In-Transit Inventory

    Not all inventory sits in a warehouse. Accounting Coach described in-transit inventory as products the company owns but doesn't have in its possession because the items are in a transportation vehicle. Managers account for this inventory with a data collection system. Inbound Logistics reported in-transit inventory may account for 5% to 20% of a company's revenue.

    To gain visibility of inventory that is currently in transit, a company needs to extend its automated data collection procedures to delivery employees and suppliers. Distribution drivers may use some mobile tools as warehouse employees. Managers can use the inventory reports coming in from real-time automated data collection practices to communicate with vendors. Every employee who talks with a supplier should record the details of the interaction into the central data system.

    Cycle Inventory

    Inventory that moves quickly through the supply chain is called cycle stock. These are products that arrive from a supplier or manufacturing process and are almost immediately pushed out to customers. Warehouse workers need flexible and quick procedures to keep up with the speed of cycle movements.

    Demand Media said many companies like cycle stock because it indicates a high demand for products. Businesses don't have to pay for overhead or maintenance fees associated with long-term storage. A quick supply chain can be tough to monitor, though, and customer demand can always change. Employees who receive, pick and ship cycle stock need mobile automated data collection devices to track items with high turnover. Complete data visibility helps managers anticipate market shifts.

    Safety and Anticipatory Inventory

    There are many reasons companies may build up a supply of safety products. Businesses may want merchandise to cover market fluctuations. Safety stock is sometimes created in times of low-demand so manufacturers can continue production schedules and keep workers employed.

    Reserve stock may also be anticipatory. Companies create piles of inventory for times of projected high sales. If a manufacturer expects a rise in the price of supplies or future inability to obtain materials, it may want to produce as many goods as possible while conditions are good. A complete data history that integrates market performance, supplier actions, manufacturing processes and supply chain performance helps companies anticipate inventory needs.

    Safety or anticipatory inventory sit on warehouse shelves much longer than other classification so employees have to monitor the condition. Mobile data collection tools allow workers to check information on merchandise and report when materials degrade or become damaged.



    Post a Comment

    Required Field

    Subscribe by Email

    You may unsubscribe from these communications at anytime.