INVENTORY MANAGEMENT

By: Monica Blanco

What is Inventory?

INVENTORY refers to the goods or materials used by a firm for the purpose of production and sale.

Activities employed in maintaining the optimum number or amount of each inventory item.

Inventory Management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory.

Involves creating a purchasing plan that will ensure that items are available when they are needed and keeping track of existing inventory and its use.

Things to consider in Inventory Management1. Warehousing - Physical space

may cap the amount of material held on-site.

2. Cost - Several cost factors influence inventory management decisions.

3. Delivery Time - Lead time between order and delivery of raw materials is an important factor.

4. Turnaround -Turnaround has several definitions when considering inventory. Where finished goods are concerned, turnaround refers to how long stock sits before sale.

Three main types of Inventory Raw Materials inventory - Raw materials inventory are raw materials that your business changes to produce its goods and/or services.

Work-in-process inventory – Work-in-process inventory is any unfinished goods that your business has made. 

Finished goods inventory – Finished goods inventory includes any finished goods that are ready to sell.

Importance of Inventory Management1. The firm has to maintain adequate inventory for smooth production and selling activities.

2. It has to minimize the investment in inventory to enhance firm's profitability.

 Inventory management helps in maintaining a trade off between carrying costs and ordering costs which results into minimizing the total cost of inventory.

 Inventory management facilitates maintaining adequate inventory for smooth production and sales operations.

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 Inventory management avoids the stock-out problem that a firm otherwise would face in the lack of proper inventory management.

 Inventory management suggests the proper inventory control system to be applied by a firm to avoid losses, damages and misuses.

Inventory serves a useful purpose in the supply chain. That said, firms can help minimize the need for inventory by carefully managing those factors that drive inventory levels up.