Chapter 1
Inventory
Management
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Chapter Outcomes
Meaning of Inventory
Function of Inventory
Types of Inventory
Inventory Cycle
Benefits of Inventory
Inventory supply chain
Determining of Inventories
quantities
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INVENTORY
Inventories include goods purchased and
held for resale, for example, merchandise
purchased by a retailer and held for resale,
computer software held for resale, or land and
other property held for resale. Inventories also
encompass finished goods produced, or work in
progress being produced, by the enterprise and
include materials, maintenance supplies,
consumables and loose tools awaiting use in the
production process.
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INVENTORY
Items held for resale in the normal course of business. That
is called inventory.
Effective inventory management plays a crucial role in the
smooth and efficient running of any organization.
Reducing excess inventory and investing in the right
inventories leads to better customer service.
Better inventory turnover leads to healthy and successful
of business.
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Functions of Inventory
 To separate various parts of the production process
 To separate the firm from fluctuations in demand and
provide a stock of goods that will provide a selection
for customers
 To take advantage of quantity discounts
 To be cautious against inflation
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Types of Inventory
 Raw material
 Purchased but not processed
 Work-in-process
 Undergone some change but not completed
 A function of cycle time for a product
 Maintenance/repair/operating
 Necessary to keep machinery and processes
productive
 Finished goods
 Completed product awaiting shipment
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Merchandising
Company
Manufacturing
Company
One Classification:
Three Classifications:
 Raw Materials
 Work in Process
 Finished Goods

Inventory
Raw Materials
Work in Progress
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Finished Goods
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Care of Inventory is Necessary?
 Growth of Sales: right inventory at the right
place at the right time
 Reduction of Cost: less money tied up in
inventory, inventory management, when an object,
service, or practice is no longer wanted even
though it may still be in good working order.
Higher Profit
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Benefits of Inventory
 To improves the accuracy of inventory orders:
It helps to find out exactly how much inventory need to have on-hand. This will help prevent
product shortages and allow to keep just enough inventory without having too much in the warehouse.
 Inventory leads to a more organized warehouse:
If the warehouse is not organized, it will have a hard time managing the inventory. Many
companies choose to make the best their warehouses by putting the highest selling products together
and in easily accessible places in the warehouse. This helps speed up the order fulfillment process and
keeps customers happy.
 It helps save time and money:
By keeping track of which products have on-hand or ordered, it effort of having to do an inventory
recount to ensure the records are accurate. A good inventory strategy also helps to save money that
could otherwise be wasted on slow-moving products.
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 To increases efficiency and productivity:
Inventory management devices, such as barcode scanners and inventory
management software, can help considerably improve the efficiency and productivity.
These devices will help eliminate manual processes so employees can focus on other –
more important – areas of the business.
 To meet against uncertain demand:
It’s a fact that good inventory management leads to what are goods are continuously
buying for – repeat customers. If able to meet customer demand quickly the inventory
helps to meet this demand by allowing to have the right products on-hand as soon as to
customers need.
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