Inventory amounts the raw materials, the goods in process and finished goods that are considered to be part of asset of the business that are ready for sale or will be ready for it. Or say, inventory is the financial investment company has made in the manufacture (or in the case of retail store, purchase) that will be sold to consumers.
Our potter will use his processed clay collection of the day to make maximum pots so that stock of clay won’t get dry. Once the clay get dried, it is hard to make good pots out of it. Same is with all the inventories. They if not well managed, will ruin business. What if a box of biscuit is for sale and the date of expiry arrived? It is further of no use and accounts a loss. So, management of inventory is a saver.
Inventory management is the process of overseeing flow of units in and out of an existing inventory. It includes ordering, storage and use of components that the company is supposed to produce or sell. The piled up inventory also calls for an extra tax burden.
Balancing inventory asks for three key aspects to be taken care of; Time, buffer stock, accurate records.
Time: Let us get back to the potter again. To manage his inventory, potter would have to do some time-calculations. How much time it takes to produce a pot, how many are produced a day, time taken to reach the retailers or consumers etc. This will help potter to plan quantity of pots made per day so that it lessen loss.
Buffer stock: It is an extra reserve of inputs or produce held as a reserve to safeguard against unforeseen fluctuations in demand or price of goods. Suppose the potter keeps ten pots extra as buffer. Suddenly, a consultancy ordered eight pots which are urgently needed for some saints. Even though the consultancy is not a regular customer, potter was able to hold extra revenue through buffer stock.
Accurate records: Keeping accurate records of produce or stock is necessary as it serve us to know whether the inventory is piling up or not. Moreover, to control inventory to find leakages if any. Also, it gives an insight of the response of customers that, to derive trend of demand for goods and thus the manage production. Potter should evaluate his business periodically.
Inventory management is risky as it involves lot of mathematics. Keeping accurate records makes it easy. Inventory manager would be a better option. But for keeping accurate records, most hire accounting firms, like accounting firms in Singapore, to calculate their inventories. Moreover they are to be added in company balance sheet also.