**3.11 Production inventory**

Production industry focuses on stock valuation, stock management, and stock control. Production inventory used raw materials in production, the semifinished goods in the warehouse, and finished goods are ready to sell. The production system produces different types of products, and it is supplied into different warehouses. This system maintained a sufficient raw material in storage for smooth running of an *Advances in Inventory Control DOI: http://dx.doi.org/10.5772/intechopen.104387*

enterprise. This inventory needs to take practice for keeping enough stock on hand so the production process can run effectively.

Processing of each product type is carried out in lots of units, and finished lots are placed in the warehouse. Lot processing time is deterministic. Failures may occur during the production process when the production facility is busy. Times between failures are exponentially distributed with average units.

Production inventory is further classified into three inventories. There are raw materials, work-in process, and finished goods.

#### **3.12 Raw materials**

Raw materials can be commodities or components that are used in the production of goods and finished goods inventory. It can be classified as either direct materials or indirect materials. Material cost adds in production with the manufacturing overhead to calculate the raw materials inventory.

For example, automobile companies purchase various kinds of metals such as steel, aluminum, resins, copper, lead, and platinum from various suppliers that are used to make finished goods. i.e., cars. Flour is considered as indirect materials in bakery company to make finished products such as bread, pasta, crackers, many cakes, and many other foods are made using flour.

Raw materials include oil, lubricant, light bulbs, screws, nuts, bolts, etc., which are the examples of indirect raw materials.

#### **3.13 Work-in-process**

It is defined as the goods that are in different stages of production in production process. Products have been partially completed in the production cycle. Sometimes, products are waiting to be assembled and sold. Inventory level of work-in-progress should be kept as low as possible, which gives better returns to the industry. It can be avoided to lock up the capital of the enterprise.

#### **3.14 Finished goods**

Products are completely finished, which are ready for sale in the production process. That is, finished goods inventory is in stock that is available for customers to purchase. In production industry, the product is first made and then sold to the buyers or the received order is first, and then it is manufactured as per requirements with some specifications.
