Typically, inventory types can be grouped into four categories: (1) raw materials, (2) works-in-process, (3) finished goods, and (4) maintenance, repair, and operations (MRO) goods.
- Raw materials are any items used to manufacture components or finished products. These can be items produced directly by your business or purchased from a supplier. For example, a candle-making business could purchase raw materials such as wax, wicks, and decorative ribbons.
- Works-in-progress inventory refers to unfinished items moving through production but not yet ready for sale. In the case of a candle-making business, work-in-progress inventory might be candles that are drying and unpackaged.
- Finished goods are products that have completed the production process and are ready to be sold: the candles themselves.
- Maintenance, repair, and operations (MRO) goods are items used to support and facilitate the production of finished goods. These items are usually consumed as a result of the production process but aren’t a direct part of the finished product. For instance, disposable molds used to manufacture candles would be considered MRO inventory.
As you’ll see below, there are other terms such as “decoupling inventory” and “pipeline inventory” used to describe types of stock based on its theoretical purpose and use. Nonetheless, physical inventory almost always falls into one of the four categories above.