Operations Management: An Integrated Approach, 5th Edition

TYPES OF INVENTORY

Raw materials

Purchased items or extracted materials transformed into components or products.

Components

Parts or subassemblies used in the final product.

Inventory comes in many shapes and sizes, as shown in Figure 12-1. Most manufacturing firms have the following types of inventory. Raw materials are the purchased items or extracted materials that are transformed into components or products. For example, gold is a raw material that is transformed into jewelry. Components are parts or subassemblies used in building the final product. For example, a transformer is a component in an electronic product. Work-in-process (WIP) refers to all items in process throughout the plant. Since products are not manufactured instantaneously, there is always some WIP inventory flowing through the plant. After the product is completed, it becomes finished goods—the bicycles, stereos, CDs, and automobiles that the company sells to its customers. Distribution inventory consists of finished goods and spare parts at various points in the distribution system—for example, stored in warehouses or in transit between warehouses and consumers. Maintenance, repair, and operational (MRO) inventory are supplies that are used in manufacturing but do not become part of the finished product. Examples ...