TYPES OF INVENTORY

In terms of product transformation processes, inventory can take a

variety of forms.These are generallly classified into raw materials, parts/
components , and work in process , finished goods, and supplies.
 Raw materials - Are virgin physical resources or times that are purchased from external organizations or extracted from
natural sources such as mines to be use for making parts/ components or products. Examples include steel( or iron ore)for the
nuts and bolts, plastic for the automobile dashboards.

Parts / components - Are major ingredients that will make up a finished product and make it make it function properly.
Examples include a battery and engine for an automobile, a hard drive for a personal computer and a dust bag for a vacuum
cleaner.

Work in progress- Refers to items that are still in in the manufacturing process and are waiting to be processed within the
supply chain. WIP often plays the role of decoupling inventory.

Finished goods - Are completed items that are ready for sale or distribution. In other words, finished goods are the ones that
do not require any more of the transformation process.

Supplies - Are items ( including finshed goods) needed to get engaged in the production process, but do not comprise the
finished product . Examples incude maintenaince, repair, and operating (MRO) supplies; pencils, pens, and paper needed for
drawing blueprint of a newly desiigned automobile; and a light bulbs that allow the worker to get egaged it the process of
producing a auto- mobile engine inside a dar manufacturing plant.
 Critical value analysis

Critical value analysis is frequently used by military organizations, which “subjectively” classify
inventory items by assigning point values for three to five categories. The man-ner in which
inventories are classified by critical value analysis is summarized in Table 5.1. Examples of the
top-priority items might include ammunition and rifles, whose shortages can jeopardize
solders’ lives. Examples of high-priority items might include military vehicles such as Humvees
and armored vehicles, whose shortages can under-mine the soldiers’ fighting capability.
Examples of medium-priority items might include military tents and shovels whose shortages
would not create life-threatening situations for soldiers but are needed for their comfort.
Examples of low-priority items might include military uniforms, shirts, and underwear, which
are not essential for combat readiness.
 Table 5.1. An Inventory Classification Made by Critical Value Analysis

Category Item Features

1 . Top priority No stock out—critical items

2 . High priority Essential, but limited stock outs permitted

3.Meduim
Describe the Priority Necessary, but occasional stock outs permitted

methods you used

to collect and
4 . Low priority
analyze data Desirable, but stock outs allowed
 Independent Demand Inventory Control and Planning

Because the inventory characteristics tied to demand patterns require a

different inventory control mechanism, inventory is often classified as either
independent demand inventory or dependent demand inventory.
Independent demand inventory refers to an item whose demand is unrelated
to other items and is therefore not affected by the demand patterns of the
other items. Examples include finished goods representing the outbound flow
of the supply chain, such as automobiles, furniture, apparel, appliances,
televisions, and personal computers. It also includes supplies such as pens,
pencils, and paper.
 Economic Order Quantity Model

The economic order quantity (EOQ) model is a two-type of multiple-period inventory

systems: perpetual (fixed order quantity or continuous inventory or Q-model) and
periodic (fixed order interval or P-model). A perpetual system triggers a new order
when the inventory level reaches a predetermined level, reducing the risk of stock outs.
It is suitable for controlling expensive items like replacement parts and supplies but is
time-consuming to manage. Advantages include optimal order size, insensitivity to
forecasting results, safety stock, easy detection of shrinkage and theft, and stock level
updates. Disadvantages include long-term order quantity, clerical errors, high costs,
and reduced opportunities for large aggregated orders.
 Dependent Demand Inventory Control and Planning

Dependent demand inventory has distinct demand characteristics

compared to independent demand inventory. Inventory control
and planning for dependent demand require different approaches,
such as material requirements planning (MRP), which calculates
material requirements and schedules orders to meet changing
demand while minimizing unnecessary inventories.
Presented by Group Larana
Table 5.9. Independent Demand versus Dependent Demand Inventory

Characteristics Independent Demand Dependent Demand

Is influenced by market
Is related to the demand for another item;
Demand pattern conditions; originates from
originates within the company.
outside the company

Is often made up of
Order pattern numerous small orders Is often lumpy (discrete).
(continuous and uniform).

Might occur at uncertain Can be better controlled by the company

Estimation times; should be when it occurs; should be calculated
forecasted. (derived).
Conclusion is the final summary of a group project
presentation.
Finished goods, supplies,
Example Work in process, raw materials
spare parts, etc.
✓ Master production schedule-A forecast of what products need to
be made in the next few months

✓ Bill of material- A recipe that tells you which materials are used, in
what quantities, to build each product

✓ Lead time-The time required to obtain or manufacture all products

and materials

✓ Batch size—The maximum amount that can be processed at any

one time

✓ Inventory balance—The on-hand stock balance of all your

products
Presented by and materials
Group Larana
 A WARM
THANK YOU
TO ALL OF YOU!