Almost all types of business have inventory and with all the different types of inventory,
when you start looking you'll find it everywhere but what are these types and what does that look
like in different types of organization? Hi there, I'm Laurence Gartside management trainer
and consultant in business operations, helping you and your team level up your business operations
fundamentals. Cakes, everyone likes cakes so let's use that as our first example. A small cake baking
business it has raw materials, work in progress finished goods inventory and service support
inventory or maintenance repair and operating inventory but what would that look like? Well,
the raw materials coming in might be the flour, butter, sugar. Then as we start to work on it and
turn it into work in progress that will be batches of dough and icing and the cakes that are being
cooked in the oven work in progress. Finally, once they're finished and ready for sale they become
finished goods inventory perhaps on display in the shop counter whereas the much less tasty
maintenance repair and operating inventory would be things like cleaning supplies, washing up
liquid and sponges that get used in operations but hopefully not in the cakes. Now, let's think of a
more traditional example of proper industry. Making cars, their raw materials could be
things like sheet metal but also very complicated bought-in components like computer chips.
As they're being assembled in the factory it becomes work in progress as the bits gradually
get added to each other the cars get painted, the wheels get put on, the seats get inserted,
work in progress until pop out finished cars, the finished goods inventory onto the transporter ship
across the world to market. It will also have lots of maintenance, repair and operating inventory.
Maybe engine oil, spare parts for the machines, light bulbs, batteries,
gloves and all the other bits and pieces that just get consumed continuously in the operations.
What about something totally different? A software development company, now they don't really have
any raw materials. Certainly not really of the physical kind perhaps you'd say things like
electricity but you don't keep that as inventory so we can't really call that. But they do have
work in progress, the jobs, the projects, the code that's partially written and in progress of
being completed because that will be sold to the customer. That partially completed code represents
hundreds or thousands of hours of work which after it's completed will become sold to a customer.
Do they have finished goods inventory? Well, maybe you could say so if they've been keeping code
waiting for it to be bought but it's usually made to order, so I don't think we'd say so.
Will they have some maintenance repair and operating supplies? General office supplies,
yes someone has to restock the ink and the paper for the printer maybe buy milk for the
coffee machine but it's minimal. A supermarket is a an example of a very different type of
operations intensive business, they don't really do or make anything with the inventory. They buy
it in as finished goods inventory and their job is distribution, logistics, sales and presentation,
customer support. They own a lot of inventory but it's all finished goods inventory
and finally they might have some maintenance repair and operating inventory such as the fuel
that goes in their trucks or light bulbs for the supermarket. Thinking of another example?
How about a stone quarry, digging up stone out of the mountain. Does it have raw materials? Well,
kind of yes but it's in the mountain and that's not so relevant, they don't have to
manage their raw materials too much but then once it's dug out of the mountain and being processed
they have a lot of work in progress inventory and once it's organized sorted maybe crushed
or cut ready for sale it becomes finished goods inventory. That becomes quite important now it's
valuable bulky expensive to own and transport so we need to get that out of our business and
to market as fast as possible. Of course, as a real heavy industry they will have lots of
maintenance repair and operating inventory. For all of that machinery, trucks and factories that
they have to run to process the stone. And for our final example, what about a hospital? Well,
they have really two types of inventory manager. The inventory manager who manages the patients
who are the jobs a type of inventory and also the stuff. Let's think about the patients first as
the the jobs going through the hospital. The raw materials coming in are sick and injured patients,
once they're being treated throughout the process of the hospital they are work in progress
and as soon as they're complete, they're told to leave we definitely don't keep any finished goods
inventory in a hospital but there's also a lot of stuff inventory in a hospital that has to be
managed in a kind of similar way. Raw materials coming in would be drugs and bandages, thousands
of different types of medical consumable widgets, raw materials coming in. Work in progress? Well,
they're just in the process of being used with the patients so once a I don't know, I don't
know the medical terms the pipes, the cannulas, the needles, the masks are with the patients
well it's being used in the process of getting that inventory finished and once it's finished
this doesn't become finished goods inventory that stuff gets discarded. So a hospital's a
fascinating place for an inventory manager thinking about the patients as inventory
which need intensive management through the system and all of the consumable stuff as well.
These different types of inventory, raw materials, work in progress, finished goods inventory,
maintenance, repair and operating supplies is just one of the ways that we can categorize inventory
but it can also be done by location or function or criticality and value. These are all topics that
we go into more detail in my introductory course on Inventory Management along with many others.
So please come and have a look over on my website rowtonstraining.com.
All right, then. That's enough for me I hope you haven't started
counting sheep unless you're a shepherd and that's your infantry of choice.