Managing inventory is a crucial part of any business, especially small businesses that are trying to thrive in a crowded market. As a small business owner, your inventory is not something you want to slack about. A procedure for managing inventory depends on the nature of business operations.
In most cases, most small businesses have direct interaction with finished goods. Therefore, finished goods inventory is the most critical type of inventory a small business should manage effectively. Why?
Finished goods directly affect a business’s ability to meet customers’ demands and generate revenue. However, small business owners need to know the peculiarities of each inventory. If a business has too many items in its inventory, it ties up valuable capital.
A low inventory on the other hand, also results in a loss of sales and profits, as well as customer loss if the business is unable to meet customers’ demands.
Types Of Inventory For Small Businesses
We will be considering five types of inventory that are directly used by small businesses. This is to streamline the key ones out of the numerous types of inventory that exist in the business world.
1. Raw goods or materials
This category of inventory consists of items that are used for further production, for the production of the final or finished good. Raw materials inventory refers to the stock of materials a business purchases and uses in the production process to manufacture products. Raw materials can include any physical materials or components that are transformed into finished goods, such as metals, plastics, fabrics, chemicals, and electronic components.
Managing raw materials inventory effectively is critical for businesses that rely on a steady supply of materials to produce their products. And it comes with several benefits for the business.
Businesses need to track the quantity and value of their raw materials inventory in real-time to ensure they have enough materials to meet production demands. This requires accurate record-keeping and regular inventory audits to reconcile physical inventory levels with recorded levels.
Keeping track of raw materials in your inventory helps you manage and set appropriate reorder points when running out of an item. This ensures that the raw materials needed for production can be met without disruption.
Quality control also becomes a reason why you need to know your raw goods inventory. Inspecting and testing the standard of raw materials happens usually at the stage of inventory. At this point, you can see defects or quality issues.
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2. Work-in-progress
Work-in-Progress (WIP) inventory is an integral part of manufacturing and production. It refers to goods that are partially completed but have not yet reached the final stage of the production process.
WIP inventory can be found at various stages of production, from initial processing to final assembly, and represents a critical aspect of efficient production management. Let’s see the significance of managing a work-in-progress inventory.
WIP inventory exists between raw materials and finished goods. It comprises products that undergo a transformation during the manufacturing or assembly process. These products are not ready for sale or distribution, but they hold potential value as they move closer to finished goods. WIP inventory serves as a bridge between the initial raw materials and the final product, representing the different stages of production.
Getting products to sell will almost be impossible if there is a glitch in this stage of production. A consistent monitoring of WIP allows for a continuous production process. It also helps a business know the number of raw materials allocated to each stage and predictably the number of finished goods expected.
Tracking WIP helps reduce production wastage as well as minimizing impending delays. Proper management of WIP prevents unnecessary tying up of capital in unfinished goods which reduces production cost control.
3. Finished goods
Finished goods inventory refers to the stock of completed products a business holds waiting for sale or distribution to customers. This inventory represents a significant investment for the business, as it ties up resources and capital until the goods are sold. Businesses need to manage finished goods inventory to optimize operations and financial performance.
Monitoring finished goods comes with some perks needed by any business. First, strict monitoring of finished goods reduces pilferage or theft. Because real-time figures are monitored. To accurately keep track of finished good inventory, you need an active and reliable record-keeping system like Kashbuk to know what goes out and what comes in at a time.
With your inventory stats, you should be able to forecast how long the items in your inventory can last for the business to meet the current demand of customers. However, this involves other factors beyond the business’ control. However, knowing demand trends and inventory capacity can help you forecast better.
Keeping track of finished good inventory help avoids sudden stockout issues. A well-managed inventory gives you time to prepare and plan a reorder to replenish stock. Using this format, you can know what items have stayed too long in the storehouse that needs to be sold off.
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4. Maintenance, repair, and operating (MRO)
Maintenance, repair, and operating (MRO) inventory refers to the stock of materials and supplies a business holds to maintain and repair its equipment and facilities. MRO inventory includes a wide range of items, such as fuel, spare parts, tools, lubricants, cleaning supplies, and safety equipment.
The soul of any business is to sell products or services, but there are some basic costs or items that facilitate sales. That category of inventory is called MRO (maintenance, repair, and operating). This inventory becomes very paramount for businesses actively involved in final goods production.
Keeping a detailed record of this inventory helps facilitate production and avoid delays. Identifying and scheduling supplies for the business is also easier by monitoring inventory. When supplies come from different vendors, you can also keep track of them and minimize administrative costs.
5. Safety stock
For finished goods, this is the backup inventory. Safety stock is the excess quantity of a product that may not be sold at a given time and is stored in the warehouse. This product inventory becomes the safety net in a situation when there is no production going on or when demand becomes higher than what current production can cater for.
For startups having this inventory comes in handy when the business is expanding. This is so that you don’t get to a point where you lose customers due to the unavailability of finished goods. For cases where you get supplies from another source, having this inventory system eliminates the immediate rush of replenishing a depleting finished goods inventory
Safety stock inventory can prepare and protect your business against sudden demand spikes. It serves as a go-to place when your order from the supplier is yet to arrive.
