Whether you run a boutique shop, a café, or an e-commerce brand, managing inventory effectively is key to running a profitable business. Understanding the different types of inventory your business handles can help you streamline operations, reduce waste, and boost cash flow.
What Is Inventory, and Why Does It Matter?
Inventory includes all the materials, components, and finished products that your business uses or sells. It goes beyond what’s on the shelf to include everything from the raw ingredients in your kitchen to the packaging you use to ship products.
Inventory management helps you make smarter decisions, such as when to reorder supplies or which items to discount. It also gives you a clearer picture of your costs, profitability, and what expenses are impacting your revenue most.
Inventory vs. Stock: What’s the Difference?
While the terms are often used interchangeably, inventory is a broader concept than stock. Stock refers specifically to finished products ready for sale, while inventory encompasses raw materials, in-progress items, and supplies used during production.
For example, if you own a bakery, the muffins in your display case are your stock. The flour, eggs, and butter sitting in your pantry? That’s part of your inventory.
The Four Types of Inventory
Every small business that sells physical goods deals with these core inventory categories:
1. Raw Materials
Raw materials are the basic components used to create a finished product. If you own a candle-making business, these might include wax, wicks, dyes, and jars. Understanding your raw material levels helps you anticipate production needs and avoid delays.
2. Work-in-Progress (WIP)
Once raw materials enter the production process, they become WIP inventory. These are items that are partially completed and not yet ready for sale. For instance, cookie dough being prepped in a bakery or an unfinished sculpture in an art studio are considered WIP.
3. Finished Goods
Finished goods are completed products that are ready to be sold to customers, also known as your actual stock. Examples include packaged snacks, boxed shoes, or wrapped sandwiches.
This category also includes safety stock (extra inventory kept to prevent stockouts) and excess inventory (unsold items that may need to be discounted or moved).
4. Maintenance, Repair, and Overhaul (MRO)
MRO inventory includes tools and supplies used during production that aren’t sold to customers. Think cleaning supplies, gloves, or replacement printer cartridges. They’re essential for operations but easy to overlook when managing costs.
Why Inventory Management Matters
Without a solid inventory system, businesses risk stockouts, lost sales, overstocking, or wasted storage costs. Add in fluctuating consumer demand or supply chain delays, and the challenges multiply.
The solution? Invest in a payment and inventory platform that lets you track and manage all inventory types in real time. When your payment processor integrates with your inventory system like Celero’s partners and solutions, you’ll gain the visibility and control you need to grow with confidence.
Need help managing inventory while simplifying your payments? Contact Celero today and discover smarter tools for a more efficient business.