In supply chain management, how would companies typically classify their inventory?

In supply chain management, companies typically classify their inventory as raw materials, work-in-progress, and finished goods because this classification helps them effectively manage the flow of products through the production process.

Raw materials are the basic inputs that are transformed into products during the manufacturing process. By distinguishing these from work-in-progress, which represents items that are in the midst of production but not yet completed, organizations can track the manufacturing process more accurately. Finished goods are completed products ready for sale, and keeping these categories clear allows companies to optimize inventory management, understand production cycles, and meet customer demand efficiently.

This classification system is essential for various operational decisions, including inventory control, production planning, and financial management, as it provides a structured approach to assessing inventory status and aligning it with overall business strategies. Each category plays a vital role in understanding where resources are allocated and how effectively the supply chain is functioning.