As defined by
A company's inventories consist of its raw materials, work-in-process, supplies used in its operations, and finished goods. An inventory can be something as elementary as a bottle of glass cleaner used as part of a building maintenance program, or something more complex, such as a combination of raw materials and sub-assemblies that are part of a manufacturing process. (Muller, p.1)
Classification of inventories according to their form
- Raw Materials Inventory: This consists of all the materials used to manufacture the products, but which have not yet been processed.
- Inventory of goods in process of manufacture: It is comprised of all those goods acquired by manufacturing or industrial companies, which are in the manufacturing process. Its quantification is made by the amount of materials, labor and manufacturing expenses, applicable at the closing date.
- Finished Goods Inventory: All goods acquired by manufacturing or industrial companies, which are transformed to be sold as finished goods.
Complementary type of inventories according to their form
- Factory Supplies Inventory: These are the materials with which the products are manufactured, but which cannot be quantified in an exact manner (paint, sandpaper, nails, lubricants, etc.).
In addition, in commercial companies we have:
- Merchandise Inventory: It is constituted by all those goods that belong to the company, either commercial or mercantile, which are bought and then sold without being modified. All goods available for sale will be shown in this account. Those that have other characteristics and are subject to particular conditions should be shown in separate accounts, such as goods in transit (those that have been purchased and not yet received), goods given on consignment or pledged goods (those that are the property of the company but have been given to third parties as security for value that has already been received in cash or other goods).
Classification of inventories according to their function
According to Castillo (p.5):
- Safety or reserve inventoryInventario de seguridad o de reserva
- Decoupling inventoryThe process is that required between two adjacent processes or operations whose production rates cannot be synchronized; this allows each process to function as planned.
- Inventory in transitis made up of materials that move up the value chain. These materials are items that have been ordered but not yet received.
- Cycle inventoryThe cost per unit of purchase, results when the quantity of units purchased (or produced) in order to reduce costs per unit of purchase (or increase the efficiency of production) is greater than the immediate needs of the company.
- Forecast or seasonal inventoryis accumulated when a company produces more than immediate requirements during periods of low demand to meet high demand. It often accumulates when demand is seasonal.
Classification of inventories from a logistical point of view
For Ballou (p.330, 331) they can be classified as follows:
- In pipelinesWork-in-process inventories: these are inventories in transit between levels of the supply channel. Work-in-process inventories, in manufacturing operations, can be considered as pipeline inventory.
- Stocks for speculationcommodities, such as copper, gold and silver are purchased both for price speculation and to meet the requirements of the operation and when inventories are established in anticipation of seasonal or seasonal sales.
- Stocks of a regular or cyclical naturethese are the inventories necessary to satisfy the average demand during the time between successive replenishments.
- Safety stockinventory that can be built up to protect against variability in inventory demand and total replenishment time.
- Obsolete, dead or missing inventorywhen it is kept for a long time, deteriorates, expires, is lost or stolen.
Other types of inventories
In the following video presentation, by Professor Francisco de la Peña of the Universidad a Distancia de Madrid, three inventory classification models are presented: (1) according to the stage of the production process; (2) according to the source of demand; and (3) according to its annual monetary use (ABC Model).
Why it is useful to maintain inventories
Following Muller (pp. 3 and ,4), in a just-in-time manufacturing environment, inventory is considered waste. However, if the organization has cash flow difficulties or lacks solid control over (i) the transfer of electronic information between departments and important suppliers, (ii) delivery schedules, and (iii) the quality of the materials it receives, carrying inventory plays important roles. Among the most important reasons for building and maintaining an inventory are:
- Predictive capabilityIn order to plan capacity and establish a production schedule, it is necessary to control how much raw material, how many parts and how many sub-assemblies are processed at any given time. Inventory must maintain a balance between what is needed and what is processed.
- Fluctuations in demandA stock of inventory on hand means protection; you don't always know how much you will need at any given time, but you still have to meet customer or production demand in time. If you can see how customers act in the supply chain, surprises in demand fluctuations are kept to a minimum.
- Supply instabilityInventory protects against supplier unreliability or when an item is in short supply and it is difficult to ensure a constant supply.
- Price protectionThe right purchase of inventory at the right times helps to avoid the impact of cost inflation.
- Quantity discountsDiscounts are often offered when buying in large rather than small quantities.
- Lower order costsIf a larger quantity of an item is purchased, but less frequently, ordering costs are lower than if it is purchased in smaller quantities over and over again (however, the costs of holding an item for a longer period of time will be higher). In order to control ordering costs and ensure favorable pricing, many organizations issue blanket purchase orders coupled with periodic release and receipt dates for the stock units ordered.
Bibliography
- Ballou, Ronald H. Logística: administración de la cadena de suministro, Pearson Educación, 2004, p.330,331
- Castillo Gómez, Karla Alicia. Propuesta de política de inventarios para productos “A” de la empresa REFA Mexicana S.A. de C.V., Tesis. Universidad de las Américas Puebla, 2005, p.5
- Eppan G.D. y otros. Investigación de operaciones en la ciencia administrativa, Pearson Educación, 2000, p.364
- Ferrín Gutiérrez, Arturo. Gestión de stocks en la logística de almacenes, FC Editorial, 2007, p.47
- González Gómez, José Ignacio, Morini Marrero Sandra y Do Nascimento, Eduardo. Control y gestión del área comercial y de producción de la PYME, Netbiblo, p.88
- Moya Navarro, Marcos Javier. Control de inventarios y teoría de colas, EUNED, 1999, p.19
- Muller, Max. Fundamentos de administración de inventarios, Editorial Norma, 2005, p.1
- Perdomo Moreno, Abraham. Fundamentos de control interno, Cengage Learning Editores, 2004, p.72
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