Manufacturing Inventories

Manufacturing inventories depend on how much value has been incorporated by the firm:

  1. Raw materials
  2. Components/Subassemblies/Unfinished items
  3. Work-in-process
  4. End items/Finished goods

Raw materials are any inventories by a company which the company has not yet processed in any way. This would include such obvious raw materials as iron ore, sand or glass. However, by definition, it could include computer chips or other expensive items which have not yet been processed.

Components/Subassemblies/Unfinished items have been processed to some extent by the company, but are not yet finished. They may leave production area and be stored off the line, but will still not revert to being called raw material. They already have value added.

Work in process is similar to components, et al. it is actually a mixture of raw materials and components that are currently a part of the production process. So some raw materials may be part of work-in-process, and some components may not be.

Finished goods are simply goods which are finished and ready for sale. They are almost never left in the work area, but are moved out into final storage or packaging.

There is often some ambiguity about classification, since a company may sell some unpainted furniture but paint some for final sale. Is a given unpainted piece to be considered finished goods or not? Perhaps we need a new term for such goods.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

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