Types of inventory
Inventory comes in many shapes, forms and stages. Understanding the types will help you identify it for valuation and management. Let’s look at them.
Merchandise you’re reselling
Most retailers have goods on the shelves, plus more out back. That’s all inventory.
Products you’re installing as part of a service
Many types of service businesses sell goods along with their labour. For example, a mechanic typically sells things like gaskets as part of a job. A gardener charges for the fertilisers they apply. A hairdresser may stock and sell hair products. Goods like these are inventory, too.
Goods you’re making (manufacturing)
Manufacturers deal with three types of inventory. They are raw materials (which are waiting to be worked on), work-in-progress (which are being worked on), and finished goods (which are ready for shipping).
You can have many types of inventory
You might sell some products exactly as you bought them, while modifying others. In this instance, you have merchandise and raw materials. It’s easier than you think to overlook inventory. Thinking about the three types can help you identify it all.
Location of inventory
The inventory you own can be in one of four places:
On the shelf
It may be on display and ready for sale.
It may be out the back of a shop, in a warehouse, or in a work van.
It may be in a vehicle between supplier and buyer.
- On consignment
In someone else’s shop, waiting to be sold (some retailers will only buy a product from a manufacturer or supplier after they’ve on-sold it).
Looking after inventory
Knowing what inventory you have, and where it is, will help make you a better business person. You’ll be more aware of where your money is tied up, and you’ll be able to make decisions that protect that investment. Your next step is to work on how you manage inventory.