Finished Goods Inventory Classifications and Terminologies

While inventory classification of raw materials for Inventory Management purposes follows ABC Classification, Finished Goods inventory is classified under additional categories based on various attributes including sales volumes/patterns, functional attributes and operational requirements.

Stock Category depending upon Sales Channels

Finished Goods at the very basic level is manufactured and stocked separately depending upon the Business Units as well as the Sales Channels.

1. A normal standard category common to most of the products is the classification of – Export SKU & Domestic SKU stocks. Along with FG Stocks exists a separate classification of spare parts and accessories under FG Inventory.
2. Many product categories classify inventory based on Sales Channels as under:
   SKUS for Institution Sales
   SKUS for Channel Sale
   SKUS for Direct Delivery
   SKUS for Sales to Govt., Defense and NGO and other projects
1. The basic product may be the same, but depending upon the classification they may contain additional bundling or kitting items etc.
2. Computer Industry is a classic example, which follows the above classification in FG inventory.
3. Automotive Components and Products are categorized into:
1. OE Supply SKU - SKUS, which are manufactured to supply to Original Equipment Manufacturers.
2. After Market SKU – SKUS, which are manufactured to supply to Spares Market through Dealer Network.
3. Exports – SKUS, which are manufactured for Export out of the Country.
4. FG Stock: Fast Moving, Slow Moving & Non Moving - FG Inventory is often categorized into Fast Moving, Slow Moving and Non Moving stocks indicating their frequency and volume of sales. This categorization is intended to serve the functional purpose of determining the sales performance of categories of Goods.
5. Bought Out Items SKU Category: All the FG goods marketed and sold by an organization need be manufactured by themselves. They could be sourcing items from other vendors or buying items from overseas markets. Global companies normally have plants spread over all continents and manufacture different categories of products. In such cases a particular countries requirement of certain products may be sourced from overseas factories of the company.

Inventory for such imported and bought out items is maintained under separate bucket to be able to identify them easily. Their valuation and costing and profit margins may be different from those of in house manufactured goods. Further imported Goods would have import duty and tax liabilities, which may be different from that of in house manufactured inventory.

Example: Computers and Desktops are manufactured by Global MNCs like Dell, HP & Lenovo. They have established manufacturing facilities in various countries catering to the local and international markets. Typically they produce few of the SKUS locally and the other products are sourced from overseas facilities. They also buy monitors, keyboard and accessories from OE Suppliers. These are considered bought out items in their inventory l listing.

6. Other functional categories of inventory: In warehouses, to facilitate operational processes as well as for ease of identification etc., inventory is categorized into many more classifications including but not limited to:
1. Stock on Hold – Inventory that is frozen/blocked and cannot be released for sale or consumption.
2. Scrap & Obsolete – Materials that are rejected, damaged and not usable or those that have crossed the shelf life and expiry date are categorized under scrap category.

When a particular SKU is no longer salable due to lack of demand and has become obsolete, it gets classified under obsolete stock and continues to be valued in the books of accounts.