Inventory Basic’s: Lesson #1
Welcome to the first series of Inventory Management Basics. We’ll be taking you through a number of lessons and guides that help you make better Inventory Management decisions. The first couple of weeks it’s intended to be fairly basic, with rich content developed later this month. First up, we take a look at what is Inventory and Inventory Management is and why it’s important.
What is Inventory?
Inventory is the materials or “things” you stock. These can tangible (products, materials you stock) or intangible (i.e. software). In most cases, when we refer to Inventory we simply mean all the materials the business has kept in stock – to sell. But, in some cases it can be Inventory that’s not intended to be sold (i.e. fixtures and fittings).
Inventory can either be listed as an asset or a liability. If a business has lots of Inventory it has an ability to convert that inventory into revenue by selling it. But conversely, having too much Inventory can also land up costing the business if that Inventory doesn’t get sold.
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What is Inventory management?
When we refer to Inventory Management we mean the theories, processes and management involved in controlling Inventory. The basic function of Inventory Management is to make sure that you have the right amount of stock on hand at all times, at the right cost.
Why is this important? Because you need to have enough inventory to sell, to satisfy customers and meet market demand. Having good inventory management is critical to a business’s bottom line. For instance it costs money to store Inventory, so Inventory Manager (or stakeholders) try to determine the minimum amount of space required to store the maximum amount of Inventory.
There are many metrics used to determine whether or not the business is doing a good job at managing Inventory. One of these metrics is called the Inventory turnover ratio. Generally the higher the ratio, the better it is for the company because it means Inventory is not sitting idle on shelves, but rather is being used in production or being sold in stores.
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