Meaning and significance of inventory

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Meaning and significance of inventory

The term ‘inventory’ means any stock of direct or indirect material (raw materials or finished items or both) stocked in order to meet the expected and unexpected demand in the future. A basic purpose of supply chain management is to control inventories by managing the flows of materials. It sets policies and controls to monitor levels of inventories and determine what levels should be maintained when stock should be replenished, and how large orders should be tackled.
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Inventory is a stock of materials used to satisfy customer demand or support the production of goods or services. By convention, inventories generally refer to items that contribute to or become part of an enterprise’s output. There are different types of inventories, however, the most commonly identified types of inventories are:
Raw Materials Inventories: Parts and raw materials obtained from suppliers that are used in the production process.
Work-in-process (WIP) Inventory: This constitutes semi-finished parts, components, sub-assemblies or modules that have been inducted into the production process but not yet finished.
Finished Goods Inventory: Finished product or end-items.
Replacement Parts Inventory: Maintenance Parts meant to replace other parts of machinery or equipment, either the company’s own or that of its customers.
Supplies Inventory: Parts or materials used to support the production process, but not usually a component of the product.
Transportation (pipeline) Inventory: Items that are in the distribution system but are in the process of being shipped from suppliers or to customers.
Manufacturing inventories is typically classified into raw materials, finished products, component parts, supplies, and work-in-process. In services, inventories generally refers to the tangible goods to be sold and the supplies necessary to administer the service.
In simple terms, inventory is an idle resource of an enterprise comprising physical stock of goods that is kept by an enterprise for future purposes.