What is Inventory? – Definition, Function, Types, Features, and More
Table of Contents
Inventory is a detailed list of goods and materials in the stock that a company holds for sale. It is the value of a firm’s current goods that consist of raw materials, work in progress, and finished products.
Inventories are real and concrete assets that are movable and immovable. They form the commercial flow of a company. These goods are for sale, hence for the consumption of products and services. They get completes in a certain period.
It is the set of items or merchandise that accumulate in the warehouse pending use in the production process or sold.
The [inventory] or stock concept is essential in companies to ensure that consumer demands are taken care of in time. And the production process shouldn’t interrupt due to a lack of raw materials. They are the regulatory tool that maintains the balance between actual inflows and outflows.
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Types of inventories
The [inventory] can be in different ways, depending on a series of parameters:
Inventory of raw materials
It consists of the materials with which the products can manufacture, but cannot process.
Inventory of products in the manufacturing process
It consists of goods purchased by industrial companies. It gets by the amount of material, manufacturing costs, and labor.
Inventory of finished products
They are the goods purchased by industrial companies, which get marketed as elaborated items.
Factory supply inventory
The materials with which the products can manufacture, but which cannot quantify precisely.
There are tools to control [inventory] and cash flow.
[Inventory] plays a vital role in the plans of any business. Among other things for the following reasons:
Ability to predict
Can set a production schedule to know how many pieces and raw materials can process at a specific time. You must maintain the balance between what is needed and what is processed.
Protection against demand
A [inventory] reserve will be secluded at any given time. You never know how much product the market is going to demand.
It protects against the lack of reliability of suppliers or when there are few units of an item, and also it is difficult to guarantee its provision permanently.
An adequate purchase in terms of quantity will avoid the impact of cost inflation.
When buying in large quantities, there is scope to offer a discount or refund.
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