Inventory refers to the goods and materials that a business holds for the ultimate goal of resale, production, or utilization. It is a crucial asset for businesses as it enables them to minimize the cost of inventory on a company’s balance sheet when they receive these goods. Inventory can be classified into three types: raw materials, work-in-progress, and finished goods. Raw materials are the materials used in production, work-in-progress refers to products in the process of being made, and finished goods are the products that are ready for sale. Inventory is recorded as a current asset on a companys balance sheet.
Inventory management is a discipline primarily about specifying the shape and placement of stocked goods. It is required at different locations within a facility or within many locations of a supply network to precede the regular and planned course of production and stock of materials. Managing inventory is important for keeping customers happy and production chugging along. However, inventory is also expensive to maintain, with annual carrying costs ranging from 20% to 30% of the inventory’s value.
In summary, inventory is a term used to describe the goods and materials that a business holds for the ultimate goal of resale, production, or utilization. It is classified into three types: raw materials, work-in-progress, and finished goods. Inventory management is crucial for businesses to minimize the cost of inventory on a company’s balance sheet when they receive these goods.
