What Are the Various Types of Inventory Management?

Types of Inventory Management

Inventory is important for all organizations as somehow it is an integral part of your business. However, the organization does not give priority to inventory management as a result business suffers from loss due to negligence of inventory management. Therefore, in this blog, we will cover types of inventory management and other topics that will help you in better inventory management. But first, let us know what exactly the inventory and inventory management is!

Inventory can be divided into 4 main categories.

- Raw material

- Work in progress inventory

- Finished goods

- MRO (Maintenance Repair Operation) Spare part

Let us discuss them in detail:

A. Raw material

The raw material is the inventory that is essential for making finished products. Manufacturing-based organizations utilize raw materials most. Raw material can be directly produced by your business, or it can be purchased from a vendor.

B. Work in Progress Inventory

Work in progress inventory is that inventory in which the product is still unfinished. It is not yet ready for utilization or purchasing.

C. MRO Spare Parts

MRO Spare part inventory is mainly used in the locomotive & automobile industry. It is a part that is removed from an asset and a new part is installed.

The maintenance department uses it most while they are performing maintenance old, rusty parts of machines are removed and new parts are installed. They are not part of raw material inventory or finish goods. Example of MRO is nuts & bolts, changing conveyor belt, and so on.

D. Finished Goods

After working with all raw materials & processing them then finally it is the state when production work is completed, and goods are ready to use or consume, or sold.

These are the four main categories in which inventory can be divided. There are, however, many various kinds of stock administration as there are sorts of organizations.

There's nobody size-fits-all answer as far as organizations, so it's critical to know however much as could be expected with regards to the various sorts of stock administration methods accessible to you so you can observe the choice that turns out best for your organization.

Recommend To Read: 5 Top Features That Help in Effective Inventory Management

What Is Inventory Management?

Inventory management is the phenomenon of ordering, storing, and selling an organization’s inventory. As we have discussed above, distinct types of inventories.

For several organizations inventory selling is one of the main sources of revenue generation. The management of inventory is not a simple task, especially when your organization has multiple branches because at some places you will require less inventory.

Inventory management helps in eliminating several types of inventory issues. Therefore, managing the right balance is hectic, that is why you need to invest in an automated inventory management system.

It shows you the inventory level of various locations from a single dashboard. An effective inventory management software provides help in inventory forecasting.

Lots of organizations are using automated inventory management software as it provides more accuracy. According to Global Market Insights, “Inventory Management Software Market size crossed USD 3 billion in 2019 and is estimated to grow at a CAGR of over 5% from 2020 to 2026.”

What Are the Distinct Types of Inventory Management?

It is very important to choose the right inventory management type for your business. Distinct types of inventory management are discussed below:

1. Perpetual Inventory Management

In this method inventory is updated after a specific period, usually months or a year. It means that data is updated monthly or yearly. In this competitive business world, it can be dangerous for business.

You do not know the real-time picture of inventory. It may lead to stock out and imbalance in inventory management. The perpetual method can be utilized in small size industry as they do not need inventory regularly.

2. Periodic Inventory Management

In the periodic method, inventory is updated regularly so organizations do not have to worry about the inventory real-time number. In simple words, data is updated at regular intervals.

Organizations can see the real-time number of inventories. With the periodic method, you can easily avoid stock out issues.

Basically, the difference between professional and periodic inventory management is that perpetual inventory updates inventory regularly whereas periodic inventory updates inventory after a long period of time.

What Are the Benefits of Inventory Management for a Business?

Inventory management can be beneficial for business that we have discussed below:

Benefits of Inventory Management for Business
Missed To Read: Explained Processes & Best Practices to Improve Inventory Management

1. Eliminating Overstock

Lots of organizations purchase inventory in huge quantities and they invest a huge amount of money in purchasing those inventories, but inventory has a limited life.

When an organization is not able to finish those stocks then they are not good for business. As a result, the whole inventory will be wasted, which is why overstocking can be lethal for business.

However, when you are equipped with inventory management you can easily avoid it as this software provides data and analytics through which you can calculate how much inventory you will require, and you can easily avoid overstocking.

2. Avoiding Out-Of-Stock

Out-of-stock issues shall not be neglected. It can raise some serious problems for any business. Especially the retail sector, manufacturing sector, etc. These sectors must have inventory available in stock all the time.

If the inventory is not available in stock, then the customer will not find the required inventory on time and customer disappointment occurs. Therefore, it shall not be neglected, and you can easily avoid this out-of-stock issue with automated software.

This software enables you to set a re-order limit for each inventory. Whenever inventory goes below the defined level it will automatically alert the person responsible and he will start the refilling stock.

3. Valuable Insights

Data is very crucial for business. It lets you know the complete picture of inventory and its related expenses. Data is very helpful in discovering opportunities and pitfalls as well.

Therefore, insights are very helpful in improving business efficiency. You can optimize business by minimizing unnecessary expenses and improving productivity.

Through insights, you can discover when your sales are higher than usual or when sales are low so that you can act accordingly.

4. Better Productivity

We know that inventory is essential for business, you need to know the exact location of each inventory. Lots of scenarios occur in which inventory is not found or finding the required inventory consumes a lot of time.

As a result, business operations are stopped, and employees' productivity suffers. You can easily avoid these types of scenarios when you are equipped with inventory management software.


It is very important to stay competitive in the market if you make one small mistake and your business will have to suffer huge losses. In order to give an extra edge to your business inventory management software is very important.

Once you invest in it you will notice a huge difference in your daily operations. We have given only a few of the main inventory management benefits.

Also Read: Why Is Equipment Calibration Management Is Important for Manufacturers?

Frequently Asked Questions (FAQs)

1. What Are the Various Types of Inventory Management Methods?

Various types of inventory management methods are discussed below:

A. JIT (Just in time) technique

B. Drop-shipping

C. ABC Analysis

2. What Are the Inventory Management Techniques Used for Tracking Inventory?

Inventory management techniques used for tracking inventory are barcode, QR Code, RFID, NFC, GPS, BLE, IoT.

3. What Is the Significance of Inventory Management Practices?

Important inventory management practices are discussed below:

1. Keep track of inventory stock level.

2. Utilize inventory tracking technologies.

3. Invest in automated software.

4. Set reorder point.

5. Streamline daily operations.

6. Use reports & analytics for business improvements.

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