The Inventory Concept:
The dictionary meaning
of the word inventory is “Stock of goods”. The term ‘Inventory’ refers to the
commodities supplied to an undertaking for the purpose of consumption in the
process of manufacture or for transformation into products.
To the finance
executive, ‘Inventory’ can be taken as the value of raw materials, consumables,
spares, work in progress and finished goods in which the company’s working
capital funds have been invested.
Inventories constitute
the most significant part of current assets of a larger majority of companies
in India. On an average inventories are approximately 60% of current assets in
public ltd companies in India. Because of the large size of inventories
maintained by firms, a considerable amount funds is required to the committed
to them. It is, therefore absolutely imperative to manage inventories
efficiently and effectively in order to avoid unnecessary investment.
A firm neglecting the
management of inventories will be jeopardizing its long run profitability and
may fail ultimately. It is possible for a company to reduce its levels of
inventories to a considerable degree, e.g.: 10 to 20 %, without any adverse
effect on production and sales, by using simple inventory planning and control
techniques.
The reduction in
‘excessive’ inventories carries a favorable impact on a company’s profitability
An inventory management system is the combination of technology (hardware and software) and processes and procedures that oversee the monitoring and maintenance of stocked products, whether those products are company assets, raw materials and supplies, or finished products ready to be sent to vendors or end consumers.
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An inventory management system (or inventory system) is the process by which you track your goods throughout your entire supply chain, from purchasing to production to end sales. It governs how you approach inventory management for your business.
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