Inventory - Term Overview

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The meaning of inventory is the set of articles or merchandise that accumulates in the warehouse pending to be used in the production process or sold. Another definition of inventory linked to the economic sphere is the ordered list of goods of an organization or person, in which in addition to stocks, other kinds of goods are also included. Also the document that collects the list of said items is known as inventory.

The inventory or stock concept is very important in companies so that consumer demands are met unexpectedly, and so that the production process isn't interrupted due to the lack of raw materials. They can be seen as a regulatory tool that maintains the balance between real inflows and outflows.

Types of inventories

The inventory can be in different ways depending on a series of parameters:

  • Inventory of raw materials: it's composed of those materials with which the products are manufactured, but which have not yet been processed.
  • Inventory of products in the manufacturing process: it's made up of goods purchased by industrial companies. Its quantification is made by the amount of materials, manufacturing costs and labor.
  • Inventory of finished products: the different goods purchased by industrial companies, which are transformed with the purpose of being marketed as manufactured articles.
  • Factory Supply Inventory: the materials from which products are made, but which can't be accurately quantified.

There are various tools to control inventory and cash flow, if you want to find out, keep reading the following article and thus improve the cash flow of your company.

Inventory Features

Inventory plays an important role in any business plans. Among other things for the following reasons:

  • Ability to predict: it's able to set a production schedule, to know how many parts and raw material are processed at a specific time. You must balance what is required and what is processed.
  • Protection against demand: an inventory reserve will allow you to be protected at any given time. You never know how much product the market will demand.
  • Supply instability: protects against the lack of reliability of the suppliers or when there are few units of an article and it's difficult to guarantee its supply permanently.
  • Price protection: an adequate purchase in terms of quantity will avoid the impact of cost inflation.
  • Discounts: When buying in bulk there is scope to offer discounts.

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