What are the 5 Types of Inventory?


Minimizing waste and maximizing productivity during the manufacturing process is necessary for a business’s economic growth. By tracking resources from when they are raw materials, to work-in-progress, to the point that they become finished products, you can reduce cost and increase efficiency. Setting an inventory system in place will help your monitor all your inventories and the costs going towards each manufacturing process.

Furthermore, it will assist you in maintaining your supply and demand chain. A business depends on a healthy demand for its goods. When the supply cannot keep up with the demand, naturally, the business topples. Keeping a proper inventory will keep your company aware of your current productivity status and the demand that it needs to fulfill.

Types of Inventory

Understanding the different types of inventory will help your business manage resources better, distribute costs more effectively, and meet market demands easily.

Raw Material Inventory

Raw materials are the building blocks for any product. These materials go through the various steps of manufacturing to produce the final product. For example, for a pharmaceutical company, chemicals are the raw materials that are used to produce medicine, which is the final product.

Raw materials can either be procured through a supplier or in some cases, manufactured by the company itself. If your business does not have an inventory system to monitor raw materials, it cannot accurately predict its annual production or profits.

There are two types of raw material inventory:

  •     Direct Raw Material Inventory- These are the materials that the final product is composed of. For example, if biscuits are the final product, then flour is their direct raw material.
  •     Indirect Raw Material Inventory- Although the final product does not contain these materials, they still do assists in its manufacturing. Materials like lubricants, cleaning supplies, single-use items, etc. are included in this inventory.

Work in Progress Inventory (WIP)

Work in progress inventory consists of all semi-finished goods and the materials used to convert raw materials into finished products. Materials that enter the manufacturing process are considered as a part of WIP inventory. For a furniture company, unpolished tables along with saws, hammers, and nails all come under work in progress inventory. Unpacked materials also lie in this category of inventory.

From a financial point of view, WIP inventory includes raw material, overhead, and labor costs. Increasing productivity and mapping an efficient production plan can reduce these costs.

Finished Goods Inventory

Finish goods inventory carries items that have reached their final form and are ready for sale. For example, the finished goods inventory for a pharmaceutical company might contain a manufactured tablet, in its blister package, followed by a unit carton, and then an overlap sealed carton.

MRO Inventory 

Maintenance, repair, and operating (MRO) inventory is a crucial component of the manufacturing process that is often overlooked. It consists of items that are essential to keep operations running during manufacturing. This category includes safety equipment, industrial equipment, materials used to repair equipment, and uniforms.

Packing Material Inventory

All materials used for the packaging of the manufactured products are included in the packing material inventory. The containers used to store creams, their unit cartons, and their overlap cartons are all classified as items of the packing material inventory.


No matter the size of your business, accounting for every resource utilized in the process of manufacturing is crucial for predicting your company’s profit margin. Understanding the importance of monitoring different inventories is essential for business owners. Employing an inventory management system for this purpose can help you navigate your business and reel in profits.

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