Raw Material Inventory
Raw material inventory is the part of the company's stock where unprocessed materials and components are stored until they are to be used in production. A well-functioning raw material inventory ensures stable production processes, minimizes the risk of downtime due to missing materials, and optimizes tied-up capital in the early part of the supply chain.
What is a raw material inventory?
The raw material inventory consists of the materials used as input in production, for example, metal, wood, packaging, or semi-finished goods. The size and composition of the raw material inventory depend on the type of production (for example, make-to-stock or make-to-order), the supplier lead time, and demand.
What is raw material inventory used for?
Raw material inventory is used, among other things, to:
- Ensure continuous production: Acts as a buffer against delays in deliveries or unforeseen increases in consumption.
- Create flexibility: Makes it possible to smooth out variations in deliveries and demand so that production can run stably.
- Optimize production efficiency: Ensures that materials are available when they are needed, which minimizes downtime.
When do you have a raw material inventory?
Raw material inventory is fundamentally used in all manufacturing companies but is particularly important:
- When the supplier chain is unstable or has long lead times
- For production with high resource consumption
- When the company works with Just-in-Time or Lean, and the raw material stock needs to be carefully balanced
- During seasonal fluctuations, where raw materials must be purchased well in advance