Financial Education | Characteristics of raw material and finished goods inventories

I should clarify that the most relevant aspects regarding the characteristics of raw material and finished product inventories are based on the fact that in all manufacturing companies, the supply chain is essential to ensure the availability at all times of the raw materials needed to manufacture the products they sell.

Direct raw material refers to all materials that are physically part of the finished product or can be easily associated with it, the cost of direct material normally includes transportation, freight and cartage.

Indirect raw material refers to those materials that physically integrate the product but lose their identity, or that for materiality purposes are taken as indirect. Raw materials are often referred to as warehousing in many companies and should not be confused with supplies.

The first function of the processing company is the purchasing function. This first function is performed by the purchasing area, whose main objectives according to the approaches are: To acquire the necessary materials, supplies and services of the appropriate quality, to acquire them in time to meet the needs of the manufacturing plant and have them delivered to the right place, and to acquire them at the lowest possible final cost.

These three objectives can be summed up in one: To have on hand the necessary items to ensure the uninterrupted production of a product, of satisfactory quality, at the lowest possible cost. Moreover, it is to get what is needed, when it is needed and where it is needed, with the desired quality and at the appropriate cost. The areas involved in the organization, control and recording of materials depend on the organization of each company.