Raw material inventory: what does it refer to?


15 October 2022

We know that raw material is the set of elements, inputs or basic and indispensable materials required by the company for its transformation, so that we can obtain a finished product from it. That is to say, the raw material inventory is the basic food in the productive process of the elaboration of a final product

The term stock, inventory, existence or merchandise refers to the quantity of a certain product stored in a company. It represents the maximum amount stored, which will depend not only on the costs of storing the product but also on the physical space available and the type of product being stored

The Raw Material that makes up the Stock of a company is composed of all the materials that will be necessary in the production process to obtain the final product, now merchandise, that will reach the final consumer or simply be part of another industrial process.

Types of raw material inventory

Thus a processed Raw Material can be transformed into a final product by itself or into a Raw Material product of another more elaborated process to obtain another product. Therefore, the Stock or inventory of Raw Materials is one of the different types of inventory that are defined according to: its form or according to the characteristics of the product or the category in which it is included. In this way, we have inventories of Raw Materials, inventory of Products in Process and also inventory of Finished Product.

It should be noted that the definition of Inventory refers to the balance of goods held by a company or legal entity, or a natural person, specifically referring to a company’s stock. Thus it is the set of elements or products that the company acquires to process them or simply to place them for sale in the market.

We make it very clear then that the Raw Material is the product that will be the object of a transformation process to become a final good or a consumer good after being subject to the manufacturing chain.

warehousing - raw materials inventory

It is also very important to know that inventory is part of the company’s core business. That is, only the Raw Material that is used in the company’s production process.

The existence or inventory of the Raw Material will be subject to a continuous and adequate control just like any of the other inventories that make up a company. One of the purposes of inventory control is to avoid the loss of raw materials, which can cause losses to the company.

You can have a periodic inventory control of raw materials, perpetual control or real-time control, each one represents an investment and a different mechanism for the company and will depend on the type and availability of the same and the amount and value of the existence that the company has.

In this way we can say that the larger and less valuable the inventory, the more expensive it will be to monitor or control it permanently and vice versa.

Safety stock

Now we can talk about safety stock, what does this refer to?

Safety stock consists of having an extra product, in this case raw materials in the warehouse, in order to be prepared to face any unforeseen event in the market. Either by: a production problem of origin of the raw material, by an increase in demand for things that do not correspond to you as a company or as has been experienced lately in the post pandemic months by a delay in the distribution worldwide.

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