What Are the 4 Types of Inventory?

When running a business, the most important aspect is customer satisfaction. Whether you run an online store or have a physical retail location, your customers will be the ones to tell friends about you and bring new customers in. Additionally, online retailers need to have good reviews to bring in new customers. If you do not properly manage your inventory, you can run out of stock or get overstocked, which can both lead to costly losses. 

What is Inventory?

what is inventory
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Inventory consists of anything that your business uses to sell or produce products. It can be finished products, parts, or any raw material. Inventory is often managed through a system that tells you what you have in stock, how much of it, and what the demand is. This allows your business to rarely run out of stock of something that might lead to unsatisfactory service. As a business owner, you should strive for tight inventory control since it can affect productivity and profitability. 

Types of Inventory

There are four types of inventory, including raw materials, work-in-process, finished goods, and overhaul. The best way to properly control your inventory is by understanding these four types. Visit https://johngalt.com/atlas to learn more.

Raw Materials

This type of inventory consists of any materials that are used to create a finished product. These inventory items are bits and pieces of parts that are currently in stock but have not yet been used to go into other types of inventory. Overall, there are two types of raw materials: direct and indirect. Direct materials are used directly in finished goods. Indirect materials are part of overhead or factory costs. It can be anything that is used to create the final product but it is not in the final product. 


This type of inventory is anything that is being used in the process of creating the final product. From a cost perspective, work-in-process inventory includes raw materials that are still in production when the accounting period ends. 

Finished Goods

what are the 4 types of inventory
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Once those raw materials have gone through the production process, you will have your final product which is often sold to a customer. This final product will go into your finished goods inventory. Any product that is ready for customers to buy is a finished good.


Also known as MRO (maintenance, repair, and operating supplies) inventory, it focuses on the small details of a business. Overhaul is any inventory that is required to assemble and sell the finished product but is not built into the product itself. Depending on your business, overhaul inventory can be in storage, at a supplier, or in transit for delivery. 

Overall, learning the four types of inventory can help any business owner properly organize their business in a way that they will rarely go out of stock. This will help you have happy customers and you will be able to be prepared for any emergencies that may occur.