Inventory for an organization are assets-held for sale in ordinary course of business (finished goods), in process of production (work in progress) and raw material & other supplies.
Inventory management is the process of tracking and controlling business’s inventory. It starts right from the procurement of goods and its warehousing and continues to the outflow. The process can be carried out in two ways manual or by using automated system. Inventory management ensure the right quantities of right item in right location at right time.
Inventory management has some of objectives for an organization-
- Reduce possibility of old stock.
- Optimization of storage cost within organization.
- Maintaining economic order quantity level.
- Reduce purchasing cost of goods.
Importance of inventory management within organization-
Inventory management play an important role in how a business runs, customers services and growth of sales. Importance of inventory management can be summarized as under:
- Smooth functioning of business: Inventory play important role in running of business smoothly. If manufacturing organization runs out of raw material, production will cease entirely until restock.
- Inventory tracking– A good inventory management system will help to keep track of inventory and offer a centralized view of stock across sales channels i.e. how much is in stock, and where. This allows access to real time data.
- Control of costs– Keeping reports about inventory help to understand what stocks are doing well versus which are just taking up inventory from long time in organization. Lack of adequate inventory level at the appropriate time can mean back orders, excess inventory, costly inventory management etc. Excess stock in organization lead to extra storage cost.
- High inventory turnover ratio– Applying Inventory planning to any business can serve as a bridge to bring in higher revenues. Inventory management ensures inventory control which results in enhancing company’s profitability. Higher inventory turnover indicates better performance and lower turnover, inefficiency.
- Meet delivery dates– For tracking, it is important to know when the vendor is shipping inventory and when it will arrive. This helps to manage customer expectations by delivery as, when and where one wants.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.
CA Aman Aggarwal
AKGVG & Associates