4.2 Inventory Management

2026 Syllabus Objectives

By the end of this topic, you should be able to explain:

  1. The purpose of inventory within a business (raw materials, work in progress, finished products)
  2. The costs and benefits of holding inventory
  3. Buffer inventory, re-order level and lead time
  4. How to interpret simple inventory control charts
  5. The importance of Supply Chain Management
  6. The purpose of JIT (Just in Time) and JIC (Just in Case) inventory management
  7. The impact of adopting a JIT approach on a business

1. The Purpose of Inventory

https://cambridgeassistant.com

Inventory means all the goods and materials that a business holds at any given time. Think of it as the "stock" a business keeps so it can keep running and keep selling.

Businesses hold inventory for one main reason: to ensure production and sales can continue without interruption. If a factory runs out of materials, production stops. If a shop runs out of products, customers leave unhappy.

Types of Inventory

There are three main types of inventory:

① Raw Materials

These are the basic natural resources or inputs that a business buys and then uses to make something else.

  • Example: A car manufacturer buys steel, plastic, and rubber. These are raw materials — they haven't been processed yet.
  • Example: A bakery buys flour, sugar, and eggs. These are its raw materials.

② Work in Progress (WIP)

These are products that have been started but are not yet finished. They are somewhere in the middle of the production process.

  • Example: A car that has its frame assembled but still needs its engine fitted and paint applied is "work in progress."
  • Example: A cake that is baked but not yet decorated or packaged is work in progress.

③ Finished Products (Finished Goods)

These are products that are fully complete and ready to be sold to customers. No further work needs to be done to them.

  • Example: A fully assembled, tested, and packaged smartphone sitting in a warehouse waiting to be shipped to a retailer.
  • Example: Loaves of bread, sliced and bagged, sitting on a supermarket shelf.

💡 Quick Summary: Raw materials → get turned into → Work in Progress → which becomes → Finished Goods → sold to customers.

Sign in to view full notes