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Understanding the different types of inventory stockpiles better can lead to good opportunities to improve supply chain efficiency.
Maintaining stock of goods is a cost for the company, while at the same time, this stock is required to create “value”.
Since stocks and flows of goods are two interdependent variables, it can be seen that proper inventory management results in higher quality operating processes, resulting in a reduction in waste in resources and capacity.
Improving and balancing these factors can contribute to increasing the productivity of a warehouse. It is important to understand the different types of stock classification methods in warehouses.
The three main categories of inventory
1) Functional stocks
This is is a type of stock that divides goods according to the function they perform.
This category includes:
- Safety stocks. They are used in extraordinary circumstances. They come in handy when a spike in orders occurs or in case of a delay in delivery by suppliers. A company must protect itself from possible uncertainties and ensure the uninterrupted conduct of operations and this kind of stock provides that protection.
- Alert stocks. These are the stocks that are used near the reorder point, an indicator that warns us that the time has come to issue a supply order. As soon as you reach a certain level of stock, you should replenish or restock items. These stocks serve (together with the security stock) to avoid the risk of a stock failure.
- Seasonal stocks. They are the stocks that accumulate in periods of low demand and are consumed when demand increases.
- Inactive stocks. This category includes products that are obsolete or that are in the terminal stage of their life cycle. These are goods that can no longer be sold or integrated into customer orders.
- Speculative stocks. These stocks are created to take advantage of a particular market scenario. If, for example, the company envisages an increase in the purchase price of a certain product in the short term, it can store it to speculate on the price later.
- Cycle stocks. These are the stocks that the company accumulates beyond its needs in the short term to benefit from a quantity discount.
2) Stocks classified by life cycle
It is a type of categorization that is based on the maximum life of a product, which is obviously reflected in the maximum time that the item can remain stationary in storage.
- Stocks of perishable products. All products that deteriorate over time or have a certain life cycle.
- Stocks of non-perishable products. These products do not affect the time factor in the slightest, so they can be stored for long periods.
- Stocks expiring. These products will no longer be able to be sold once the expiration date indicated on the package has been exceeded.
3) Stock levels (operational classification)
In this case, the stock is classified according to the type of operational organization and the daily needs of the company.
Optimal level. The perfect balance according to the company’s objectives. This is the type of stock management that makes it possible to reduce costs, optimize profitability and respond adequately even in periods when requests are lower. Careful management of inventory quantities will avoid any stock breakdowns and excesses (which could saturate the stock).
- Total stocks. Refers to all products available in the warehouse.
- Net stocks. All inventory in inventory, excluding inventory intended for orders and still to be processed.
- On-hand stocks. This stock is the sum of net stock and products sent by your suppliers, but not yet received.
- Minimum stocks. The minimum amount of product to keep in stock to avoid putting production or distribution processes at risk.
- Maximum stocks. The limit quantity of materials to be kept in stock beyond which both operating costs and disposal times would increase considerably.
The productivity of any warehouse depends on proper inventory management. Operators should always have a complete view of what is lying stationary on the shelving by carrying out continuous sanitary checks that affect all products. Knowing the types of inventory, dividing them by function, expiration date, or operating mode, will help you to bring further efficiency to the plant and the organization of the goods.
These are the most common types of inventory, however, you can also further classify stocks in other ways such as based on economic value (ABC analysis).
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