What are the different levels of inventory in a manufacturing company?
The inventory of parts in a manufacturing industry begins with a simple separation of ingredients vs. product—the manufactured product has inventory problems of its own—cost of storage, FIFO vs. FILO, etc. But the inventory of ingredients (the parts and tools for making the product) is further divided by long-term accessibility vs. short-term accessibility—some ingredients should be stored onsite, while other only need to be quickly and readily order-able, thus minimizing their storage cost (but ease and speed of delivery must be a factor). Another division is perishable vs. nonperishable goods—metals can be inventoried without a lot of loss from non-use (maybe rust), but lubricants, solvents, etc. have a shelf-life. An important division is also the venue of inventory storage—simple warehousing vs. outdoor storage vs. specialized storage (refrigeration, flammability issues, etc.) Finally, a flexibility and accessibility consideration divides the inventory into items easily brought onto the manufacturing floor (forklifts) vs. labor-intensive and machinery-intensive inventory storage (lofts, cranes, special transport mechanisms, etc. There might also be a division between essential items vs. optional items, etc. The taxonomy is, of course, further refined by the inventory manager.
There are four types of inventory that are typically associated with manufacturing companies. These are raw materials, works-in-progress, finished goods, and MRO goods.
Raw materials are the basic items that will be used to make the firm’s products. For an automaker, then, raw materials would include windshields, tail pipes, steering wheels, and all the other parts that come to the manufacturer from suppliers and are then made into a final product. While these are waiting to be used, they are inventory.
Once the raw materials begin to be assembled, they are works-in-progress. They will remain on this level until they are finished.
When the product is finished, it goes into the category of finished goods. It remains there until it is sold and is no longer part of the firm’s inventory.
MRO stands for maintenance, repair, and operating. These are goods that the firm needs, but are not made into its product. For example, the auto maker must have a store of lubricating oil for its machinery. This is part of MRO.