What is inventory?
As you know, the meaning of inventory in business is the collection of all the items, goods, merchandise, and materials held by a company or business for selling in the market to earn a profit. Inventory is not used the produce things or promote a brand or business.
Its sole purpose is to sell to the customer and earn profit but only for this, it is not called Inventory. Inventory must be part of the business or company.
For eg, a t-shirt shop’s delivery truck is not considered inventory because it is not directly or part of a product but in the vehicle business the delivery truck is a part considered inventory because they are in the business of selling vehicles.
Inventory is a major asset on the balance sheet for almost every company and it's depending on what goods or services your business provides.
What is the impact of inventory on businesses?
The impact of inventory on businesses is a crucial factor to consider. Inventory management plays a significant role in determining the success or failure of a business.
Proper inventory management can lead to better customer satisfaction, increased sales, and higher profitability.
On the other hand, poor inventory control management can lead to stockouts, excessive inventory, higher carrying costs, and ultimately, financial losses.
Therefore, businesses must implement effective inventory management systems and strategies to optimize their operations and maximize their overall performance.
Inventory Management
As you know, working with a huge amount of inventory is quite complicated and requires lots of time but Konigle's Shopify Inventory Management helps you to save time and increase profits.
Read More: How to manage your inventory in Shopify?
I'm excited to tell you about this awesome tool that has a bunch of cool features and functionalities. It will help you keep track of your inventory, monitor it effectively, and optimize it so that you always have the right products available at the perfect time. By using this powerful solution, you'll be able to improve your overall operational efficiency and make the most of your business opportunities. Here is the complete process to manage inventory easily.
Inventory Example
One common example of inventory is the stock of a store. This can include a wide range of items like clothing, electronics, and household goods. The store should always make sure to have enough of each item to meet customer demand and keep sales going smoothly.
Another great example of inventory is the stock of a manufacturing company. This can include raw materials, work-in-progress items, and finished goods.
Raw materials are the essential components that are used to create the final product. Work-in-progress items are partially completed products that are still undergoing production. And lastly, we have the finished goods, which are the completed products that are all set and ready for sale.
In the food industry, inventory can include perishable items like fruits, vegetables, and dairy products. These items have a limited shelf life and should be managed with care to avoid spoilage and unnecessary waste.
What are the 7 types of inventory?
In the exciting world of inventory control management, we come across several types of inventory that are commonly identified. These different types of inventory play a crucial role in the overall supply chain and are absolutely essential for the smooth operation of businesses. Let's dive into the 7 main types of inventory:
1. Raw Materials:
Materials that are needed to turn your product into a finished product are raw materials inventory. The raw material is pieces of component parts (eg, batteries, boxes, etc.) that are currently not ready or in progress.
2. Work in Progress:
Materials that are direct or indirect (eg, phone cover, circuit, etc.) used to create products are work in progress(WIP) Inventory.
3. Finished Goods:
This is a finished ready-to-sell product (eg, Mobile phone, Perfume bottle, etc.) that can be sold to wholesalers, retailers, or even end users also.
4. MRO Inventory:
It is inventory that is required to assemble, maintain, repair, and operate supplies (eg, folders, printer toner, gloves, etc.) and sell the finished product but is not built into the product itself.
5. Transit Inventory:
It's also known as in-transit inventory, which is when goods are on the move from one location to another. These goods are in transit and are not yet ready for sale or use.
6. Anticipation Inventory:
Anticipation inventory stock that we hold in anticipation of future events or changes in demand. It's like preparing for the future! For example, we might stock up on seasonal inventory ahead of time to meet the expected increase in demand during specific times of the year. It's all about being prepared and ready for what's to come!
7. Deadstock or Obsolete Inventory:
Deadstock or obsolete inventory refers to items that are no longer in demand or usable. These are products that have become outdated, expired, or are simply no longer relevant in the market. It's important to manage and minimize deadstock inventory to prevent valuable resources from being tied up.
How to calculate inventory turnover?
Inventory turnover is an important metric that businesses use to evaluate the effectiveness of their inventory management. It shows how efficiently a company can sell and replenish its inventory during a specific timeframe.
A high inventory turnover indicates that a company is doing a great job in managing its inventory and efficiently converting it into sales. On the other hand, a low inventory turnover may suggest that a company is facing some challenges in selling its products or effectively managing its inventory.
By examining the inventory turnover ratio, businesses can gain valuable insights into their sales performance, the demand for their products, and the effectiveness of their inventory management strategies. This metric assists businesses in making well-informed decisions concerning their purchasing, production, and sales strategies.
This the formula to calculate turnover of the number of times a company sells (inventory).
Average inventory = Beginning Inventory + Ending Inventory / 2
Inventory turnover = Sales + Average Inventory
What are the benefits of inventory in a business?
There are so many benefits that can result from managing inventory properly. Some of them are:
- Identify and reorder items you sell
- Prevent Dead Stock
- Improve Pricing
- Reduce out-of-stock
- Improved Warehouse Organization
- Improved Accuracy of Inventory Orders
- Save Time and Money
- Improved Customer Retention