Home Supplychain Videos Supply Chain Basics Series What is an Inventory? Learn it in just 5 Minutes!

What is an Inventory? Learn it in just 5 Minutes!

Inventory is one of the most crucial lever within Supply Chain. Learn what is inventory in just 5 minutes using a supply chain story of a mother and her son!

So in this video what we’re going to see are –

– What is an Inventory?
– Types of Inventory
– What is Buffer Inventory?
– What is MRO Inventory?

Prerequisite Videos (see them in the same order as given)
What is Supply Chain Part 1?
What is Supply Chain Part 2?
What is Supply Chain Management?
Operations Role within Supply Chain

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Video Transcript:

Hello Everyone. Welcome back to SupplyChainWay.com

In this video Lesson, I’m going to explain you about, What is an Inventory?

Okay. So, let’s get it started.

So we are going to use the same Supply Chain story which we used in the video – What is Supply Chain? to explain – What is an inventory? as well.

Now, if you have not seen that video, I have given the link to the video ‘what is supply chain’ in the description of this video.

Please watch that video and then come back and see this video; so you will get the continuity of the topic. In this Supply Chain story we’ve listened to the story of a mother who wants to send home cooked to her son on a daily basis. If you closely look at the story, the ingredients undergo a transformation. Let’s see what it is. So over here, the ingredients…

Vegetables, Rice, Dal, Spices, Flour, Mlk etc which are bought by the mother.

Then, these ingredients become during the process of cooking – cut vegetables, soaked rice, boiled milk, soaked rice, rolled flour, soaked dal etc and once the cooking is completed,

they have become veg, roti, curry, side dish etc.

And then when it is on the way to her son, it is lunch packed in lunch box.

So this is the transformation which the ingredient undergoes. Now to put it into the right terms of inventory. When they are vegetables, rice, dal, spices, flour, milk, they are called

the Raw Material inventory which is stocked by the mother at her house.

During the process of transformation to food, the cut vegetables, soaked rice, boiled milk, rolled flour, soaked dal, all these are called the work in progress inventory, because they are in the process of getting transformed to the final product, which in this case is the food.

And veg rice, roti, curry, side dish etc are the finished goods inventory.

And the lunch packed in the lunch box is the in transit inventory because that is moving towards her son.

So these are the right terms and I’m sure now you understood what is raw material inventory what is work in progress inventory what is finished goods inventory and what is in-transit inventory. so if we fit this into the real supply chain model this is how it’s going to look. All the raw material stocked by the manufacturer before conversion process is called the raw material inventory.

All the raw material which is under conversion become work in progress inventory.

And the final products that is after the conversion is completed they become the finished goods inventory and the products which are in the movement are in transit inventory, till it reaches the…

customer. So to consolidate we have the supplier manufacturer distributor retailer and customer.

And sourcing manufacturing and distribution we have already seen that. Now

We have Raw material inventory,

work in progress inventory, finished goods inventory, in transit inventory, this you are clear now. There is one more inventory which is very crucial which is Buffer Inventory.

Let’s go back to the same supply chain story and I’m going to explain what is buffer inventory, If you see here I’m going to explain you 2 scenarios. For example.

This vegetable vendor visits the mother only once in two days.

She’s also little irregular that she may take three days most of the times.

What the mother does this she stocks three days worth of vegetables in her refrigerator to ensure she doesn’t go out of vegetables.

This is one scenario. The second scenario mother along with the packed lunch, she also sends biscuits to her son on a daily basis considering the ease of doing it, she makes biscuits in a lot, stores them and sends two or three biscuits on a daily basis to her son.

In these 2 scenarios the three days worth of stock of vegetables and the stock of biscuits, both are called the Buffer Inventory. Both are kept for a very specific

reason, One is considering ease of doing it which is a stock of biscuits. Another one is kept considering the lead time for getting the raw material. okay. so that is called the buffer inventory. Let’s go back. The buffer inventory is clear as well now. The last one I have is a MRO Inventory. So what is MRO?

It is maintenance repair and operating supplies. So again to go back to the same supply chain story and see what kind of MRO Inventory is maintained by the mother.

If you see in this supply chain story, the MRO inventory examples if I want to give you – additional gas cylinders which may be maintained by the mother.

Other could be some gaskets or any other spares which she would have kept for the home appliances, even scrub to clean vessels, that also will come under MRO Inventory. These are some of the exmaples which I can think of in this story. Similar way for Maintenance repair and operating supplies in the real supply chain comes under the MRO Inventory. Now, let’s go to the definition of what is an inventory?. So the definition of inventory goes like this – “Inventory is good in stock at various stages of conversion till the final product is sold to the Customer.

So that’s it for today.

Feel free to write to me if you have any comments or clarifications and I would be glad to answer them. Thank you so much.
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