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What Is An Inventory?

An inventory is the current stock of materials or goods that a business will pass on to the customers.

These are the things that a company or business stocks to supply their customers.

An inventory comprises of the things that spearhead the primary focus or goal of the need.

These are the things that the company requires to have meaning and to run.

There are those things that a company might buy, but not to sell, just to support the smooth running of a business.

An excellent example to differentiate this is for a sandwich selling company to run; it has to purchase the ingredients of the sandwich.

This is what we categorize as inventories. However, for the business to run smoothly, there should be a distribution truck or preparation equipment; this is not part of the inventory.

Main types of inventories.

Different types of companies have different types of inventories. This means that inventories for one business might not be an inventory for the other. The categories of inventories include;

  • Raw materials.
  • Work-in-process.
  • Finished goods.

Raw material inventories.

This inventory will comprise of the small parts or goods that will be required to manufacture, process, or build something tangible.

A good example, for a car manufacturing company, the raw materials will consist of tubing, steel bars, sheet metal, etc.

Work-in-process inventories.

For the work-in-process inventory, the components will be the product of the raw material in its unfinished state.

In this case, the inventory will comprise of a car that is awaiting assembly by another company.

Finished goods inventories.

This is the stock that consists of the end product of a manufacturing process that is ready for sale to the end-users or retailers & wholesalers for distribution to their customers.

An inventory is very important in the running of any business.

It helps manage the stock to make sure your business does not run out of stock of a crucial material or good that would interfere with the supply of your company’s product.