Inventory Management: Types of Inventory

Topics: Inventory, Supply chain management terms, Manufacturing Pages: 6 (2233 words) Published: February 25, 2013
Table of Contents
Raw materials2
Finished goods5
Maintenance inventory7



Inventory is defined as a stock or store of goods .generally speaking, inventory can be divided by two types: independent demand and dependent demand, independent demand is kind of demand which is no need to rely others types of item they are ordered by the external customers or manufacturer for stock and sale. If one type of inventory depends upon another item, take the example of car. The car as finished goods is as independent demand item, while the raw materials and components used in the manufacture of the finished Goods.The number of goods depends on the types of the firm.If the firm is a manufacturer, it must maintain some inventory of raw materials and work-in-process in order to keep the factory operating. In addition, finishedgoods are another necessary inventory for the firm to meet the customers who need the goods suddenly. The firm which has enough inventories to satisfy customer is a goodevaluation for the firm’s standard and itsstability, italso is a good way to save the costs of production fee. There are 8 types of inventories: buffer inventory, de-coupling inventory anticipation inventory, pipeline inventory raw materials, partially completed goods and maintenance inventory and in-transmit goods inventory. I will use an example as a cart factory with four types of inventories and it will be raw materials, work-in-progress, finished goods and maintenance tools.

Raw materials
Raw materialsare one of the inventory items that are used in the manufacturer's conversion process to produce the semi-completive goods and finished productsTypically, raw materials are the things such as ore, grain, minerals, petroleum, chemicals, paper, wood, paint, steel, and food items.cart is kind of old tools using for transfer goods, because it can saving the cost of the production, and the electric cart can be using as a vehicle, so what is the comments of the cart

Consider an example of a rolling cart. This cart consists of a top that is pressed from a sheet of steel, a frame formed from four steel bars, and a leg assembly consisting of four legs, rolled from sheet steel, each with a caster attached, so even one component’sof cartcannot be made of without any types of materials. And if the firm buy large amount of quantity ,the factory which provide the raw materials for the firm may use “quantity discount model”, it will bring the benefit both factory and the firm Thefigure below showsus the cost that the firm charges for the customers from different period:

From the figure that we can know: If the ordering quantity is less than or equal to Q1 then purchase price is Cp1. If the ordering quantity is more than Q1 and less than Q2 then purchase price is Cp2. If the ordering quantity is greater than or equal to Q2 then purchase price is Cp3. But this figurecannot show us a continuous total cost curve, because the annual purchase cost breaks at two places namely at Q1 and Q2.It means the more quantities customer order, the total cost is lower, this model achieve the economy of scale the benefit achieved through economy of scale that he wants to pass it onto customer. The how a firm saves the money and how much it can save, thecalculation below briefly shows the process: Thefirm decides to order the logs from the factory, and the ordering size is Lot-For-Lot.supposing they order annual demand is 1500units per year, holding cost is $30 per unit per year,ordering cost is $50 unit per year, and if order less than80 units the cost will be $55 per unit, however. If the firm orders more 70 or equal to 70 will be $52.5 per unit.According the EOQ calculation, firm’s order demand around 707 the firm only need toordering10 more units will get $2.5 per unit. So the total holding ordering, and item costs for the year=(Q/2)H+(D/Q)+DP, according this...
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