Everything You Need to Know About Inventory Management

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Simply put, an inventory is a collection of all products and raw materials needed to make goods. No matter how big or small a business you have, good inventory management is a must to ensure smooth operations.

Take a business that sells personalized gifts, for example. They must have a readily available list of all the remaining materials in storage. This way, when a customer asks if they can get 20 customized canvas prints for a birthday party one week later, they would know if they can accommodate the order and meet their deadline.

A comprehensive inventory would also tell you when to place orders with your supplier or when to pull out items, especially when they are nearing expiry dates.

The classic way to do inventories is by using pen and paper or a spreadsheet. List down all the necessary details, including the quantity of an item, the date they were purchased, orders successfully made, and so on. However, with a bit of help from technology, more sophisticated inventory management systems are being used by bigger businesses which will be discussed later on.

4 Primary Classification of Inventories

1. Raw materials

Raw materials are the goods that you need to create a product. For example, if you sell food, the raw materials would be the ingredients. If you sell coffee, the raw materials would be coffee grounds, syrups, even cups and holders. All of the items you need must be accounted for on the raw materials inventory.

2. Work-in-progress

Once the raw materials are pulled out of storage to be made into a product or good, the number of raw materials should be reduced then added to the work-in-progress inventory. All the projects that have just been started are included here, as well as those waiting for approval.

3. Finished goods

This one is pretty self-explanatory. Once approved, the product leaves that work-in-progress inventory and moves to the finished goods list.

4. MRO goods

MRO goods are the items you keep for maintenance, repairs, and operations. All items not directly needed to make a product must be accounted for in this inventory. Add things like spare bolts and nuts for machine repair. Or cleaning supplies like chemical solutions and brooms. Lastly, office supplies such as paper, printer ink, and clips fall under this inventory.

The technology used in inventory control systems

It is not surprising that software applications aid warehouse and stockroom managers to track and manage inventories. One of the most common ways inventory is encoded into an online system is through barcodes.

Some applications enable automated alarms or notifications. For example, once an item reaches a certain number of stocks, it will notify you that you need to order more.

Inventory Management

There are two main types of inventory control systems. One is perpetual inventory, while the other is periodic inventory. Basically, when you use perpetual inventory, every time a stock gets added or removed, you record it right away. Endless inventory systems are more accurate, but they are also more expensive.

On the other hand, periodic inventory uses data: the beginning and ending inventory levels. After a specific period, say a month, the beginning and ending inventory levels will be compared and computed. For periodic inventories, a physical count of items and stocks is necessary, which takes quite some time.

Tech used within inventory control systems


Ever since the invention of barcodes, manual listing or data entry was relegated to the farthest seats at the back. With the help of barcodes, it’s easier to track the movement of items. For example, when a raw material leaves the storage, the barcode will be scanned, and the item will be automatically deducted from the list of raw materials. Once it reaches the next stages of production, the same process applies again. So from production to packing and shipping, you have the data.


Radiofrequency identification (RFID) is also utilized in inventory management. There are two types of RFID, passive and active. If you use tag readers at fixed locations around the warehouse, that is active RFID. Readers read RFID tags and record the data in the system. Passive RFID, on the other hand, is that which uses handheld devices used to read RFID tags.

Managing inventories well is one of the key elements you should focus on when running a business. These numbers will tell you if you are making a profit or not or losing something along the process. At the same time, everyday business operations become more manageable with accurate and efficient inventories.

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