The money and materials invested in by a company in order to create products for sale.
Comments: In truth there are few areas that can yield more outstanding initial cost savings than the reduction of inventory in many, if not most companies. Inventory must be viewed as “MONEY” and treated accordingly.
The most common types of Inventory are:
Raw Materials: Un processed components waiting for work to be done on them. This is the least expensive form of inventory especially if suppliers will wait for payment until you begin using these materials.
Work In Process (W.I.P.): Materials that have had some work done to them but are not yet finished. This is the second most expensive form of inventory as “value” has been added to the materials.
Finished Goods: This is the most expensive type of inventory as the materials have already traveled through the value stream and are now complete. Although most companies carry some Finished Goods Inventory it can be a serious waste and burden on cash-flow.
Note: Some consider staff members to be a form of inventory as well as machines, buildings, electricity, innovation, and etc.