Inventory 101
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Inventory, love it or hate it
What is it?
The value of materials and goods held by an organization (1) to support production (raw materials, sub assemblies,work in process), (2) for support activities (repair,maintenance, consumables), or (3) for sale or customer service (merchandise, finished goods, spare parts).
Why do we need it?
Doing business means that you have some goods, some tangibles that you will use to make your business idea real.
If the business is your idea, the inventory is what makes the idea come true.
Why do we have to care?
Inventory is one of the most important assets of a company, it shows what the company is using for its business.
Inventory is something that you have bought, it is something that you have paid for and therefore you should take good care about it.
As we know resources are finite and should be treated with good care. Cash is a desired commodity that makes ideas come true, being a commodity is scarce, therefore it gets your utmost attention.
Inventory is very cash intensive and can make or brake your cash flow, therefore too much inventory is not good.
cash = 1/inventory
or
inventory = 1/cash
If you want to have more cash decline the level of inventory.
More inventory means also less cash.
More about inventory
Inventory is also called stock, meaning what you have to store, what you have on stock.
When handling inventory you should also take care or at least consider also the following topics :
- stock keeping/inventory management
- stock rotation / inventory turnover
- stock keeping accuracy
- costs related to stocks ( like ordering cost, set up costs, cost of shortage, holding cost )
- FIFO/LIFO
- standard cost
- etc.
TopCFO can help you with this sensitive and complicated aspect of inventories/stocks. Because inventories/stocks are a TOP issue for your business it can be only handled by TOP professionals, TopCFO is here to help.