Inventory management is crucial for a company's operations, involving the regulation of raw materials, work-in-progress, and finished goods to meet production and customer demands. It balances the costs of ordering, holding, and shortages with strategies like Economic Order Quantity to maintain optimal stock levels. Tools like inventory control charts aid in efficient management, considering factors like stock turnover, storage capacity, and supplier reliability.
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Raw materials are essential components required for production
WIP encompasses items that are in the process of being manufactured
Finished goods are the final products that are ready for sale or distribution to customers
Holding inventory ensures a steady supply of materials, preventing production delays and lost revenue
Inventory acts as a buffer against supply chain disruptions and delays in supplier deliveries
Bulk purchasing through inventory management can lead to cost savings for the company and its customers
Ordering costs include administrative expenses and physical costs of receiving and handling supplies
Holding costs cover storage, insurance, taxes, depreciation, and obsolescence
Shortage costs arise when inventory levels are insufficient, leading to missed sales opportunities and potential emergency restocking expenses
An inventory control chart helps track and control inventory levels based on historical data, sales forecasts, and supplier performance
Factors such as stock turnover rate, storage capacity, supplier reliability, product lifecycle, and customer demand must be considered when determining optimal inventory levels
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Inventory Management Function
Regulates and supervises company's inventory, ensuring optimal stock levels and minimizing costs.
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Inventory as Current Asset
Inventory appears on balance sheet as current asset, indicating it can be converted to cash within a year.
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Finished Goods Definition
Products completely manufactured, ready for sale or distribution to customers.
