In this article, you will learn:
- What Are Raw Materials?
- Raw Materials Explained
- Using Raw Materials to Manufacture Goods
- Raw Materials and Finished Products
- Raw Materials to Finished Goods Examples
- What is Raw Materials Inventory Management?
- How is the Inventory of Materials Done?
- How Do You Calculate Raw Materials Inventory?
- How to Calculate Raw Material Value With Weighted Average Costing?
- Best Raw Material Inventory Management Techniques
Raw Materials Inventory is an essential resource for your business.
You carry raw materials inventory to meet demand, cover lead time and price increase, and take benefit of quantity discounts.
However, it can prove to be one of the most expensive assets of your business if managed poorly.
Carrying raw materials inventory for longer periods of time can eat away your business profits. This is because the carrying costs like obsolescence, damage, storage, etc. can range between 15% to 40% of your cost of inventory.
Therefore, manufacturers practise lean raw materials inventory. This is done to reduce their waiting time resulting from bottlenecks in production and transportation of such inventory items.
The primary purpose of lean manufacturing is to eliminate waste. Further, there are seven kinds of wastes that any company should get rid of. And the Raw Materials Inventory is one of them.
This is because such inventory sits as a waste if it does not move through the production process. Therefore, you need to manage your raw material inventory. And it should be done in a way that increases your production efficiency and delivers quality goods at a low cost.
In this article, we will discuss what are raw materials, types of raw materials, and how to calculate raw materials inventory.