Inventory consists of those accounting items or the raw materials or those specific components which the company uses in its production or sells. The verb “inventory” refers to the very act of counting or listing of various items. Hence it is altogether an accounting term which indicates that the company uses this as a measure to keep a definite count of its current assets or stocks. It is very important for any business to keep a definite measure of its inventory or stocks so that it can actually assess the amount of raw materials it has in its store take orders accordingly and successfully meet its target sales.
Inventory Analysis is referred to the process of examining inventory or to determine the optimum amount a business should actually carry. This allows the firm to get a clear picture of its inventory that can actually help to keep the business profitable as well as help the business firm keep up with the customers’ demands and focus in increasing sales and controlling costs. In inventory analysis the business firm is involved in calculation that would actually helps a business better understand their existing inventory levels which ultimately improving cash flow, reducing stock outs and altogether increasing operational efficiency. Inventory analysis actually empowers the business instead of beings stagnant. It actually helps the business explore better business opportunities by understand the level of investments that it can commit and acquiring the right mix of products absolutely based on consumer demand.
There are numerous benefits of inventory analysis which includes:
In businesses products often go down a manufacturing line and each of this activity tends to eat a part of the profit margin. This is the reason that lean manufacturing has become so essential for all businesses ti survive in this ultra-competitive global economy. Today businesses focus in tracking all of these costs and inefficiencies through their manufacturing processes. Businesses can categorize materials as they move through the process, from being raw materials to works-in-progress, and finally finished products. Thus in this process inventory can be classified into 4 types which includes:
Inventory management actually helps the business in multiple ways. It primarily helps in increasing sales along with bringing in the necessary informational transparency. It also ensures that business have shorter lead times and helps in lowering the overall cost of the business. The business is also benefited by improving its delivery performance and maintaining stronger customer relationship. Inventory management also benefits in increasing employee efficiency, helping in accurate planning in the overall business operations, building customer loyalty and altogether increasing inventory turnover.
Inventory often indicates the products that we actually sell to the customers. It includes the costs associated with purchasing and selling of the inventory which are then subtracted from the revenue made. Cost and gross profit from sales of inventory is a major part of the business’s tax return. Therefore managing the inventory in a responsible manner is very important for the business to ensure profits as well as meet is able to maintain strong customer relationships in the business.
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