Inventory Management
Inventory management

Inventory is a list of goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials.

Inventory to many small business owners is one of the more visible and tangible aspects of doing business. Raw materials, goods in process and finished goods all represent various forms of inventory. Each type represents money tied up until the inventory leaves the company as purchased products. Likewise, merchandise stocks in a retail store contribute to profits only when their sale puts money into the cash register.

In a literal sense, inventory refers to stocks of anything necessary to do business. These stocks represent a large portion of the business investment and must be well managed in order to maximize profits. In fact, many small businesses cannot absorb the types of losses arising from poor inventory management. Unless inventories are controlled, they are unreliable, inefficient and costly.

Successful inventory management

Successful inventory management involves balancing the costs of inventory with the benefits of inventory. Many smallbusiness owners fail to appreciate fully the true costs of carrying inventory, which include not only direct costs of storage, insurance and taxes, but also the cost of money tied up in inventory. This fine line between keeping too much inventory and not enough is not the manager's only concern. Others include:

  • Maintaining a wide assortment of stock -- but not spreading the rapidly moving ones too thin;
  • Increasing inventory turnover -- but not sacrificing the service level;
  • Keeping stock low -- but not sacrificing service or performance.
  • Obtaining lower prices by making volume purchases -- but not ending up with slow-moving inventory; andHaving an adequate inventory on hand -- but not getting caught with obsolete items.