Inventory is an idle stock of physical goods that contain an economic value, and are held in various forms by an organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time.
Any organization which is into production, trading, sale, and service of a product will necessarily hold stock of various physical resources to aid in future consumption and sale. While inventory is a necessary evil of any such business, it may be noted that the organizations hold inventories for various reasons, which include speculative purposes, functional purposes, physical necessities etc.
What is ‘Inventory Management’
Inventory management refers to the process of ordering, storing and using a company’s inventory: raw materials, components, and finished products.
A company’s inventory is one of its most valuable assets. In retail, manufacturing, food service and other inventory-intensive sectors, a company’s inputs and finished products are the core of its business, and a shortage of inventory when and where it’s needed can be extremely detrimental. At the same time, inventory can be thought of as a liability (if not in an accounting sense). A large inventory carries the risk of spoilage, theft, damage, or shifts in demand. Inventory must be insured, and if it is not sold in time it may have to be disposed of at clearance prices – or simply destroyed.
For these reasons, inventory management is important for businesses of any size. Knowing when to restock certain items, what amounts to purchase or produce, what price to pay – as well as when to sell and at what price – can easily become complex decisions. Small businesses will often keep track of stock manually and determine to reorder points and quantities using Excel formulas.
For companies with complex supply chains and manufacturing processes, balancing the risks of inventory gluts and shortages is especially difficult. To achieve these balances, organization are going to inventory management implementation, training & audits.
From the above definition, the following points stand out with reference to inventory:
- All organizations engaged in production or sale of products hold inventory in one form or other.
- Inventory can be in complete state or incomplete state.
- Inventory is held to facilitate future consumption, sale or further processing/value addition.
- All inventoried resources have economic value and can be considered as assets of the organization.
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Contact us at email@example.com to get your organization Inventory Audits.