Classification of Inventory

Why bother with the classification of inventory? How does it help with the day to day operations of the warehouse?

By giving each inventory item a unique identification number, it makes it easier for us to locate that item at a later stage. We also use product grouping classifications to group inventory items together.

Most businesses use code numbers or names, to identify and refer to the range of materials, assembly items, sales goods and other merchandise they may carry, or want to introduce, into their inventory.

When the business is small, long descriptions tend to be used to identify the articles that they carry.  But …… as volumes of these inventory items become larger, so there comes a cross-over point when code names or numbers are initiated. This is done to save time, avoid confusion between similar items, improve processing accuracy, and introduce an opportunity for classifying, into groups, all the parts and materials held in inventory.


The purpose of applying product codes is so that the product can be easily identifiable. We would use the same series of codes for similar products and our coding system would follow a pattern.

The product code will uniquely identify the product in its particular state and will change as the product moves through different stages of production.

Different types of coding methods can be used as a standard within a company. It is important that all product codes have a standard to make it easier to identify the products you are looking for.

The use of item codes greatly improves the inventory management processes of receiving, binning, picking, despatching, delivering, returning goods to stock (when needed) and verifying inventory with counting processes, to make identifying easy and to find inventory in the warehouse.


Some of the coding methods that could be used for the classification of inventory includes:

Block Coding:

A canning company might use a range of code numbers for jams and another range of numbers for canned fruits and canned drinks. This is referred to as block coding as blocks of code are reserved for specific product types or product groups.

The important thing to remember is that the longer the code the greater the incidence of errors in coding.

Significant-digit codes:

This method uses sub-groups of numbers to describe characteristics of the product. In this coding method used for tyres, the first 2 characters represent the type of tube, the next 2 sets in the code identifies the sizes and the last digits identify the type of tyre.

TT 670 15 B 1Tube Type; size 670 x 15; blackwall, 1st line
TT 670 15 W 1Tube Type; size 670 x 15; whitewall; 1st line
TT 710 15 B 1Tube Type; size 710 x 15; blackwall; 1st line

Group-classification codes:

This form of coding shows minor codes within intermediate codes within major codes. This method of coding products allows us to classify or group products in many different ways, such as:

  • Imported or local
  • Country of origin – USA, CHF, FRN, GER
  • Inventory Type – Raw Materials, WIP, Finished Goods, MRO
  • Warehouse Location

With the use of computer systems, identifying and finding items that are correctly coded becomes much easier. The unique product code is linked to a group of products for us.


When it comes to classification of inventory and which coding method to use, it is important to know your product range and also to future-proof whatever coding system you choose, i.e. Once it is in place, it will stay with the business for many years. So, be sure to take into account all the variables, because you really have to think this one through before you make your final decisions.

The choice of different coding methods, criteria, and structures, may have a great impact in striving to create efficiency in a business – certainly a warehouse – so care and good maintenance of the coding must continually be managed for consistency.

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