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In: Operations Management

Describe the four types of inventory. With the advent of low-cost computing, do you see alternatives...

Describe the four types of inventory. With the advent of low-cost computing, do you see alternatives to the popular ABC classifications?

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Expert Solution

Describe the four types of inventory.

1. Raw material: This is the inventory which is used as an input to the machine which produces the output or finished good. This inventory is mostly the produce from farms or the extraction of minerals from ore. It can also be a product of another organization which is being fed as an input to our machinery. The example of this inventory can be iron, aluminum, steel or commodities like crude oil, wood paper etc.

2. Work in Progress: This is the inventory which the company produces and has not reached the final stage of output. The process can have several stages of production or machining. The product at each step between beginning and end is called as WIP. For example, of there are four stages of a process through which each product has to undergo, step 2 and step 3 product will be called as work in progress (WIP).

3. Finished Goods: This the inventory which consists of the product past the final stage (final product) is called as a finished good. This inventory is directly sent to the buyer as the company product at MRP.

4. Other Goods: This can consist of below inventories:

a.) Transit inventory: It results from the transport of items from one location to another, provided with the fact that there is some time to feed one machine output to other machine as input in next stage.

b.) Buffer Inventory: This is inventory which is used as a buffer to cater to supply demand in-equilibrium condition. Companies always have some buffer stock in order to prevent the non-supply cost of working.

With the advent of low-cost computing, do you see alternatives to the popular ABC classifications?

With the advent of low cost computing, an alternative to ABC classification can be JIT (Just In Time) approach. In this method, the required amount of inventory is maintained, the required amount of goods are produced as an hen required. This is done with the help of robust supplier chain mechanism, efficient control systems and low inventory. This results in lowering the cost of inventory and helps the company to save unnecessary costs but the company requires a high level of specialized skilled workers and systems in place.


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