Business owners need to purchase different items to run their business. Inventory is all the items or goods that a company holds to sell to their customers. Here, let's join Giaiphapdonggoi.net to learn about what inventory is and the content related to inventory!
1. What is inventory?
The definition of inventory varies slightly depending on the industry. Here are the definitions:
What is inventory?
The most common definition
Inventories refer to all the items, goods, and materials held by a business for sale in the market for a profit.
Example: If a newspaper seller uses a vehicle to deliver newspapers to customers, only that newspaper is considered inventory. The vehicle will be treated as an asset.
Manufacturing
In a manufacturing business, inventory is not only the final product that is produced and ready to be sold, but also the raw materials used in production and the semi-finished goods in the warehouse or on the floor. machine.
Example: For a cookie manufacturer, inventory would include packages of ready-to-sell cookies, unrefrigerated or unpackaged inventory of semi-finished biscuits, cookies intended for quality control and raw materials such as sugar, milk and flour.
Service industry
In a service industry, since there is no exchange of physical inventory, inventory is essentially intangible. So, service industry inventory mainly consists of the steps involved before completing a sale transaction.
Example: For a research consulting firm, inventory includes all the information collected for a project. In the hospitality industry, an empty room is inventory for the owner.
2. What is the impact of inventory in the business?
What is the impact of inventory in the business?
Inventory is a key asset to any manufacturing or trading business, so it's important for business owners to understand what it really means. In addition to the general definition, some industries such as manufacturing and services use specialized definitions for all assets associated with that industry. Knowing the different types of inventory, including those not specifically used in accounting, can help business owners understand how inventory works for them.
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3. Types of inventory
Types of inventory
Inventories are generally classified as raw materials, work in progress, and finished goods.
Raw materials are unprocessed materials used to produce goods. Examples of raw materials include aluminum and steel for the production of cars, flour for the production of bread, and crude oil held by refineries.
Unfinished inventory means partially completed goods awaiting completion and resale; work-in-progress inventory, also known as inventory on the production floor. For example, a half-assembled plane or a partially finished yacht would be in the works.
A finished product is a product that has been completed in production and is ready for sale. Retailers often refer to this inventory as "commodity". Common examples of merchandise include electronics, clothing, and cars held by retailers.
4. Advantages of inventory management
Advantages of inventory management
A business can save huge amounts of cash by managing its inventory as closely as possible. As less inventory has to be kept onsite, the company's working capital requirements are reduced accordingly, thus freeing up cash for other purposes. There are many ways to reduce inventory.
For example, a business might arrange for suppliers to ship goods directly to their customers (known as order shipping), to completely eliminate the need for finished goods inventory. Another possibility is to use suppliers located near the company's manufacturing facilities, to take advantage of smaller and more frequent deliveries that reduce raw material availability. A third possibility is to arrange workstations closer together, so that parts processed on one machine can be transferred to the next workstation.
Each of these different categories is important, and managing them is key to the survival of any business. Inventory control is one of the most important concepts for any business, especially retailers. Since they buy goods from manufacturers and sell them back to consumers at a small profit margin, they have to manage purchases and control the amount of cash in the goods.
5. Why do you need inventory?
Why do you need inventory?
Storing and managing inventory incurs an expense for every business. To
To avoid inventory, businesses can simply place orders for suppliers and ask them to ship directly to customers. However, for most companies, it is difficult to maintain such a supply chain. In addition, they will depend on suppliers and may not be able to meet customer needs on time. Keeping inventory on hand allows you to:
Respond to customer needs immediately.
Reduce delivery costs.
Performance optimization.
Provide better customer service.
Prevent loss from theft, damage and returns.
Address seasonal needs.
Buy in bulk and store at a cheaper price.
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