Just How Many Kinds of Inventory are there?

The following list identify most of the types of inventory that need to be considered when calculating the Working Capital component of the Asking Price, when preparing to sell a business.

1. Raw Materials: These are the basic, unprocessed materials used to produce goods. Raw materials inventory includes items that are used in the manufacturing of products and can vary widely depending on the industry, from steel in car manufacturing to flour in a bakery.
2. Bulk Materials: These would be your aggregate materials, such as salt, sand, rocks, soil, etc., that are used in large quantities, cannot be tracked or quantified by smaller units of measurement.
3. Work-in-Progress (WIP): This type of inventory includes materials that have started the manufacturing process but are not yet completed products. WIP inventory can also account for the labor and overhead costs associated with the production process at various stages.
4. Semi-Finished Goods: Inventory that is partly finished and waiting for final assembly is typically referred to as Work-in-Progress (WIP) inventory. However, when it's specifically waiting for final assembly, it might also be described as being in a "semi-finished" state or "sub-assembly" inventory, indicating that these items are in an intermediate stage—beyond raw materials but not yet completed products. They require further processing or assembly before becoming finished goods ready for sale.
5. Finished Goods: These are completed products ready for sale to customers. For manufacturers, this means items that have gone through the entire production process; for retailers, finished goods are the inventory purchased from suppliers for resale.
6. Allocated / Sold Inventory: This is the portion of the Finished Goods that have been ordered and possibly paid for by one or more customers.
7. In Transit: This represents the inventory that is currently enroute or being delivered to the customer. Sometimes the distance travelled is less than a day, while other times it can take weeks or months depending on where your shipping to and if there would be any disruptions along the way (port authority strikes, lost of pirated shipping vessels and/or tractor trailers, etc.).
8. Maintenance, Repair, and Operations (MRO) Goods: MRO inventory includes supplies and equipment used in the production process but not directly part of the finished products. Examples include machinery parts, lubricants, cleaning supplies, and safety equipment.
9. Packing Materials: This category includes the packaging used to wrap or protect goods during storage or shipment. While not a product sold to consumers, packing materials are essential for the presentation, delivery, and protection of goods.
10. Safety Stock: Also known as buffer stock, this inventory is kept on hand to protect against stockouts caused by unforeseen fluctuations in demand or supply. Safety stock ensures that production can continue and customer orders can be fulfilled even when unexpected delays or spikes in demand occur.
11. Decoupling Inventory: These are stocks kept between different stages of the production process to ensure that downstream operations can continue even if there are interruptions or malfunctions in upstream processes. Decoupling inventory helps in maintaining workflow continuity.
12. Cycle Stock: Part of the inventory that is regularly produced or ordered and turned over to meet average demand. Cycle stock levels rise and fall based on production schedules and replenishment orders.
13. Anticipation Inventory: Stock accumulated in anticipation of peak demand periods, seasonal sales, or known business disruptions. Businesses build up anticipation inventory to avoid stockouts during periods of high demand.
14. Obsolete Inventory: Items that are no longer sellable due to being out of date, out of fashion, or superseded by newer models. Managing obsolete inventory is crucial to avoid holding costs and to free up storage space for more profitable products.
15. Excess Inventory: This could be inventory that was written off from previous years to avoid paying taxes or simply an overproduction of goods that exceeded demand.

Additionally, it's important to consider the payment schedule for the aforementioned inventory – specifically, when the business settles its accounts with suppliers for their materials or inventory. Furthermore, there's the aspect of Finished Goods that have been Sold or Allocated to meet customer orders. These elements can complicate the process of calculating the Working Capital required for the business to maintain its operations at the current level.