Inventory Management Types: A Guide for Manufacturers

Inventory management types fall into two categories: the physical inventory you track (raw materials, WIP, finished goods, and MRO) and the methods you use to manage it (perpetual, periodic, JIT, ABC, and more).

To choose the right approach, growing manufacturers need to understand both categories and how they work together.

This guide covers the most common inventory management types, control techniques, and tracking tools — with real-world examples throughout.

What are the types of inventory?

Most physical stock in a manufacturing operation falls into one of five categories. Here's what each one means.

Raw materials

Raw materials are the materials used to create finished products. They can be items produced by your business or purchased directly from vendors. When the product is completed, the raw materials look different than their original form. For example, oils that go into making a bar of soap are raw materials.

If you want a deeper dive, check out our guide to raw material inventory management.

Components

Components are similar to raw materials in that a business uses them to create finished products, except they remain recognizable when a product is completed. Think of a screw that goes into an electronic assembly or a tire on a car. Managing components accurately often requires a solid bill of materials (BOM) structure.

Work in progress (WIP)

Work in progress (WIP) refers to unfinished items in the production process, sometimes called bulk products or intermediate products. In terms of a soap manufacturer, the work-in-progress inventory might be the soap that is drying, unpackaged, and yet to be cut into individual pieces.

Maintenance, repair, and operations (MRO) goods

MRO is inventory — often in the form of supplies — used to support and facilitate the production of finished goods. These items are consumed in production but aren't directly part of the finished product. For example, disposable molds used to manufacture soaps would be considered MRO inventory.

Finished goods

Finished goods are products that are sellable after the production process. In our soap example, this would be the soaps themselves, packaged and ready for sale.

You'll see many other terms such as "transit inventory," "decoupling inventory," "excess inventory," and more, but these terms describe the status and purpose of the inventory. The physical stock almost always falls into one of the five categories above.

Inventory tracking software, MRP systems, and ERP systems typically track all five types. Good MRP/ERP software also lets you track MRO items such as nuts, bolts, belts, tape, glue, or other materials used to maintain the factory and assist in operational functions.

Want real-time visibility into every SKU? See how Brahmin tracks inventory across all your channels →

Inventory management methods

Beyond knowing what types of inventory you have, you need a system for how you track and value that inventory. These are the most common inventory management methods.

Perpetual inventory management

A perpetual inventory system updates your stock counts in real time — every time you receive, use, or sell an item, the system records it immediately. This is the most accurate method and is standard in most modern inventory and MRP software. It gives you a live picture of what's on hand, what's committed, and what needs to be reordered.

Periodic inventory management

A periodic inventory system updates stock levels at set intervals — weekly, monthly, or quarterly. Between counts, you don't have a real-time view of inventory. This approach works for very small operations or businesses with low SKU counts, but it becomes unreliable as you grow.

FIFO (first in, first out)

FIFO means you use or sell the oldest inventory first. This is essential for manufacturers dealing with perishable goods — food, cosmetics, supplements — where shelf life matters. FIFO helps reduce waste and ensures customers receive fresh products.

LIFO (last in, first out)

LIFO means you use or sell the most recently received inventory first. It's less common in manufacturing but can have tax advantages in certain situations. LIFO is not permitted under IFRS (International Financial Reporting Standards), so it's mostly used by U.S. companies reporting under GAAP.

MRP (material requirements planning)

MRP uses your bill of materials, production schedule, and current inventory levels to calculate exactly what materials you need, how many, and when. It's the standard for growing manufacturers because it connects demand to procurement automatically.

Comparison of inventory management methods

What inventory control techniques should you use?

Inventory control techniques help you decide how much to order, when to order, and which items to prioritize. The right technique depends on your industry, company size, and product structure.

Economic order quantity (EOQ)

Economic order quantity is a formula businesses use to determine the ideal order size that minimizes both ordering costs and holding costs. This method is often used by process manufacturing companies that produce products in bulk. These companies can purchase materials in large quantities because they know precisely how many products they'll produce. They include variables like demand rate, inventory holding cost, and order cost to figure out the optimal purchase quantity. Producing in volume helps hold down costs, which improves cash flow.

Minimum order quantity (MOQ)

The minimum order quantity (MOQ) is the smallest number of products a manufacturer will agree to sell. This usually means you need to order at least a dozen or a hundred, depending on the product. Having an MOQ in place allows manufacturers to produce products more efficiently and track inventory more accurately.

Just-in-time (JIT) inventory

A just-in-time (JIT) inventory system is designed to minimize inventory storage costs by keeping only the minimum amount of items necessary on hand. For a JIT system to work, you need a solid understanding of the manufacturing process and robust supply chain management. Any delay from a supplier can halt your entire production line.

ABC analysis

ABC analysis is a way to rank your products by how profitable or important they are. "A" items are the most profitable, "B" items are moderate, and "C" items have low margins or low volume. The goal is to ensure you always have enough material for your highest-value products. If there's a disruption and you're short on material, you can prioritize A items and make sacrifices on lower tiers.

Safety stock and reorder points

Safety stock is extra inventory you keep on hand to protect against unexpected demand spikes or supplier delays. Your reorder point is the inventory level at which you trigger a new purchase order. Together, these two numbers prevent stockouts without tying up too much cash in excess inventory. For more on this, see our guide on ways to improve inventory control.

The control technique you use will affect the type of inventory tracking you need. Each method also introduces limitations to manual tracking. For example, ABC analysis can be highly subjective when done by hand. MOQ and EOQ formulas can produce errors without software validation. Growing manufacturers can use affordable inventory or MRP software to manage any of these techniques effectively — without human bias or error.

Inventory tracking tools

Several tools can help automate the inventory management process. These tools connect to your inventory software or MRP software so the entire process stays near real-time.

Barcoding

Barcodes and QR codes are the most common tracking tool today. You apply them to items like raw materials, components, and finished goods. Workers use handheld scanners to read the codes as items move through receiving, production, and shipping. This information updates records in your MRP system automatically.

RFID

RFID (Radio Frequency Identification) is another way to identify and locate materials. It uses chips that communicate with Wi-Fi or scanners to report where materials are in real time. Active RFID tags broadcast a signal continuously. Passive RFID tags don't have their own power source but can be read by handheld or embedded scanners.

Embedded metering

Some machine manufacturers include sensors that measure how much material is consumed during production. You can connect these machines to inventory tracking software for automatic updates, or operators can enter the values manually at a station.

Inventory tracking software

Growing manufacturers often deal with unreliable or unpredictable supply chains. Manual inventory tracking causes errors, human bias, and poor stock-level decisions. Today's traceability software platforms — including MRP and ERP systems — are agile, flexible, and purpose-built for small to mid-sized manufacturers. This means you can use the same caliber of software that large companies rely on, without the enterprise price tag.

The right software ensures you always have the materials you need, in the right place, at the right time.

SKUs: The building blocks for inventory types

Stock Keeping Units — also known as SKUs — are item codes that you and others use to search and identify items.

Make sure to add an SKU to each inventory type mentioned above if you use it for your business. Setting up an easy-to-understand system for SKUs is vital because it lets you identify, differentiate, and monitor your inventory at a glance.

Stick to an alphanumeric system for your SKUs and avoid accents and symbols that can cause issues in spreadsheets or software. It's easier to start with an SKU numbering convention as early as possible — it gets much harder to restructure when you have hundreds of items. For a step-by-step walkthrough, read our guide on how to create SKU numbers.

Frequently asked questions

What are the 4 main types of inventory?

The four main types of inventory are raw materials, work in progress (WIP), finished goods, and maintenance, repair, and operations (MRO) goods. Some frameworks also include components as a fifth category, separating them from raw materials because they remain identifiable in the finished product.

What are the 5 R's of inventory management?

The 5 R's are the right product, the right quantity, the right condition, the right place, and the right time. They serve as a simple checklist to make sure your inventory management process is delivering what your production line and customers need.

What is FEFO and how is it different from FIFO?

FEFO stands for "first expired, first out." Instead of using the oldest received inventory first (FIFO), FEFO prioritizes items with the nearest expiration date. FEFO is common in food, supplement, and cosmetics manufacturing where products have varying shelf lives. Lot tracking software makes FEFO practical by tying expiration dates to individual batches.

What are the 7 types of inventory management?

Common lists of inventory management types include perpetual inventory, periodic inventory, JIT (just-in-time), ABC analysis, EOQ (economic order quantity), FIFO/LIFO, and MRP (material requirements planning). The right combination depends on your industry, product complexity, and growth stage.

How Brahmin Solutions can help

Brahmin Solutions is a cloud-based manufacturing platform for manufacturers doing $500K–$50M in revenue. It handles MRP, inventory tracking, production planning, lot traceability, and BOM management in one system — without the cost or complexity of enterprise ERP. If you're ready to move beyond spreadsheets and manual counts, book a demo and see how it fits your operation.