Types of Inventories. Inventory denotes “stock of goods”. Various authors have defined this word in their own way. In terms of accounting, the word may be used to refer to the stock of finished goods only, while in a manufacturing concern this may include work in process, stores, raw materials, etc.
The following are the main types of inventory:
1) Movement Inventories:
This is the inventory that is in transportation mode and cannot be used for production purposes during that time. This type of inventory is also known as transit or pipeline inventory.
2) Buffer Inventories:
This kind of inventory is maintained to protect against fluctuations in demand and supply. While a firm may estimate its demand and supply based on past experience, it cannot predict it exactly. In order to keep the production process smooth during such uncertainties, the firm maintains buffer inventories. This type of inventory is also known as ‘safety stocks.
3) Anticipation Inventories:
These inventories are held by the company to meet future requirements. The production is done for a specialized period. For example, a company may decide to hold an inventory of umbrellas before the arrival of monsoon and water heaters before the winter season.
4) Decoupling Inventories: ( Types of Inventory )
This type of inventory is meant to decouple various manufacturing processes from each other. For example, a machine may use the product of another machine as its input. In such cases, it is necessary to maintain an intermediate inventory, so that both machines can work simultaneously.
5) Cycle Inventories:
This type of inventory is held on account of the difference in the exact requirements of the firm and the order placed by the firm.
6) Independent Demand Inventory:
This type of inventory results from a forecasted demand. It generally consists of finished products and is not related to any higher-level item. For example, complete finished products, soap, and automobiles.
7) Dependent Demand Inventory:
This inventory consists of items that have derived demand. For example, general parts, materials, assemblies, and components used in a finished product.
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