What Is Inventory?

Inventory is the raw materials, components and finished goods a company sells or uses in production. Accounting considers inventory an asset. Accountants use the information about stock levels to record the correct valuations on the balance sheet.

What Is Inventory Management ?

Inventory management helps companies identify which and how much stock to order at what time.

It tracks inventory from purchase to the sale of goods. The practice identifies and responds to trends to ensure there’s always enough stock to fulfil customer orders and proper warning of a shortage.

Once sold, inventory becomes revenue. Before it sells, inventory (although reported as an asset on the balance sheet) ties up cash. Therefore, too much stock costs money and reduces cash flow, too little will starve production or Sales 

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Why Is Inventory Management Important ?

Inventory management is vital to a company’s health because it helps make sure there is rarely too much or too little stock on hand, limiting the risk of stockouts and inaccurate records.

Public companies must track inventory as a requirement for compliance with Securities and Exchange Commission (SEC) rules and the Sarbanes-Oxley (SOX) Act. Companies must document their management processes to prove compliance.

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Benefits of Inventory Management

The  main benefits of  good Inventory management

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• Improves Cash Flow:
  With proper inventory management, you spend money on inventory that sells, so cash is always moving through the business.

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• Satisfies Customers:
  One element of developing loyal customers is ensuring they receive the items they want without waiting.  Good inventory management ensures you’re able to fulfil incoming or open orders

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• Saves Money:
  Understanding stock trends means you see how much of and where you have something in stock so you’re better able to use the stock you have. This also allows you to keep less inventory and still support your customer. Reducing cost of storage. 

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Inventory Management Challenges

The primary challenges of inventory management 

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• Having too much inventory​​

Too much Inventory ties up cash ,uses too much space, need more resources, can age and become obsolete

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• Not having enough inventory to fulfil orders

Not enough inventory leads to missed sales, revenue and profit and a disappointed customer who may not return.​

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• Getting Accurate Stock Details:

If you don’t have accurate stock details, there's no way to know when to refill stock or which stock moves well.

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• Poor Processes:

Outdated or manual processes can make work error-prone and slow down operations.

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• Changing Customer Demand:

Customer tastes and needs change constantly. If your system can’t track trends, how will you know when their preferences change and why?

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• Using Warehouse Space Well:

Staff wastes time if like products are hard to locate. Mastering inventory management can help eliminate this challenge.

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