What is inventory? How to classify inventory in warehouse
Inventory is an important factor that affects a business's ability to supply and store the necessary quantity of goods to meet market demand. In the following article, 1C Vietnam will answer questions about what inventory is as well as classify current inventory. Let's find out the details in the content below.
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1. What is inventory?
Inventory is a collection of products, raw materials or goods that a manufacturing or trading enterprise has available in stock to serve customer needs or for use in future production and business processes. hybrid. Inventories include goods that have not been sold or raw materials and finished products that have not been used in the production process.
Businesses utilize inventory as a short-term asset, consumed or used in production and business processes. Inventory plays an important role in the supply chain, ensuring timely delivery of goods and replenishment of the production process.
2. Classify inventory in warehouse
Inventory classification is an important process in the inventory management and control of a business. This helps businesses clearly identify the types of goods in warehouse and come up with effective management measures. Some ways to classify inventory include:
2.1 According to use
Classifying inventory according to use helps businesses determine the correct material and clearly show it in accounting reports. This supports effective inventory management and appropriate business plans. Specifically, inventory can be divided into:
- Raw materials: Includes materials used in the production process to create the final product. This is the most important factor in the production process, because without raw materials, it will be impossible to produce products for sale to the market.
- Semi-finished products: Each step in the production process will create semi-finished products. The greater the number of production stages, the more diverse the number of semi-finished products.
- Finished products: These are products that have completed the manufacturing process and are ready to be sold or stored within the business. Finished products becoming inventory depends on many factors including waiting for a sufficient quantity of finished products to form a production batch or reserve for sale in accordance with the product's season.
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2.2 According to formation source
Classifying inventory based on its origin helps businesses control, use and manage inventory according to purpose. Specifically, inventory can be divided into:
- Purchased inventory: These are products formed from purchasing products from outside or from affiliated units in the same business system.
- Self-produced inventory: These are products processed and produced directly by the enterprise.
- Inventory formed from other sources: These are goods donated or imported from joint ventures or other sources.
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2.3 According to usage needs
When classifying inventory according to usage needs, businesses can evaluate the reasonable level of inventory products and come up with appropriate business plans. Specifically, inventory can be divided into:
- Inventories used for production and business: These are products stored to ensure the business's production and business process is not interrupted.
- Unused inventory: Often, businesses will store an amount of goods that exceeds the actual needs for production activities. This difference is the result of holding back more goods than necessary. Products of this type are called unneeded inventory.
- Unused inventory: These are products that cannot be used in business operations because they do not meet quality, technical or other criteria.
Thus, in businesses there are many different types of inventory. Depending on the specific purpose and production and business needs, businesses will use these items accordingly. Currently, due to the large demand for using and storing inventory, inventory management has become an essential task that businesses need to focus on. So what is inventory management? Read on to understand this process below.
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3. What is inventory management?
Inventory management is the process of controlling the ordering, storage, and use of inventory items in a business. Inventory can include raw materials, components, finished products, and finished goods. The warehousing and handling of these items also falls within the scope of inventory management.
Inventory management is an important job in the supply chain, helping to track the flow of goods from the production process to storage in the warehouse and then continue to transaction points.
4. Purpose of inventory management
Inventory management is a necessary activity, ensuring safe and effective storage, tracking and control of items to meet the timely needs of businesses. The main purposes of inventory management include "provisioning - speculation - trading":
- Contingency: Businesses need to reserve inventory to prepare for the worst possible business situations, ensuring that the business has enough raw materials in case of supply interruption.
- Speculation: Storing inventory also helps businesses take advantage of changing prices. Businesses can buy goods at low prices and resell them when prices increase, generating higher profits.
- Transactions: Maintaining a certain amount of inventory allows businesses to ensure production is not interrupted due to lack of raw materials and sales transactions are not affected due to the availability of finished goods.
Above, 1C Vietnam has shared detailed information about what inventory is as well as common types of inventory in businesses today. Hopefully, with the above information, businesses will know how to classify inventory to manage, store and use it effectively to meet production and business requirements. Don't forget to follow other related articles on 1C Vietnam's website to update useful information about commodity management and business management.
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