Inventory Types


Most manufacturing organizations divide their inventory into raw materials, work in process, finished goods, and goods for sale. A good purchased as a "raw material" goes into the manufacture of a product. A good only partially completed during the manufacturing process is called "work in process. " When the good is completed as to manufacturing but not yet sold or distributed to the end-user, it is called a "finished good."

Manufacturing process From raw materials to work in process to finished goods.

Manufacturing process: From raw materials to work in process to finished goods.


  1. Raw materials: Materials and components are scheduled to make a product.

  2. Work in process, WIP: Materials and components that have begun transforming into finished goods. These items are not yet completed but are just fabricated and waiting in a queue for further processing or buffer storage.

    The term is used in production and supply chain management. Optimal production management aims to minimize work in process. Work in process requires storage space, represents bound capital not available for investment, and carries an inherent risk of earlier expiration of the product's shelf life.

    A queue leading to a production step shows that the step is well buffered for supply shortages from preceding steps. It may also indicate insufficient capacity to process the output from these preceding steps. Just-in-time (acronym: JIT) production is a concept to reduce work in process with respect to a continuous configuration of product.

    Sometimes, outside of a production and construction context, "work in process" is used erroneously, where the status "work in progress" would be correctly used to describe more broadly work that is not yet a final product.

  3. Finished goods: Goods ready for sale to customers. Finished goods is a relative term. In a supply chain management flow, a supplier's finished goods can constitute the raw material of a buyer.

  4. Goods for resale: Returned salable goods.

Key Points

  1. Raw materials: Materials and components scheduled for use in making a product.

  2. Work in process, WIP: Materials and components that have began their transformation to finished goods.

  3. Finished goods: Goods ready for sale to customers.

  4. Goods for resale - returned goods that are salable.

Term

  • Supply Chain – a system of organizations, people, technology, activities, information, and resources involved in moving a product or service from supplier to customer.

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