Inventory refers to the stocks that are stored for prospective use or selling. In the retail industry, it refers to the goods that may be under various stages of development or in storage before the selling process. It is the largest asset of retail stores. They are expected to be sold in a year. The term ‘inventory’ is essential in the accounting world. Businesses/Enterprises take a count of the inventory at regular intervals to keep their accounts up to date. The retail companies follow a process of making the inventory available at every point of time and refilling the stocks to avoid ‘out of stock status. This process is termed as inventory management.
Significance of Inventory Management
Company or retailers opt for inventory management because one cannot afford to lose even a single customer. If a product is not available at a store, then the buyer will go to other stores and he/she may be averse to coming back to that store in the near future as it might leave a negative impact on his/her mind. Inventory management avoids such kinds of situations. So, in order to keep the customers intact, inventory management is imperative for every organization. This concept forms a proper link between the manufacturing of a product and its sale in the market within the preferred time period.
Types of Inventories
Inventory is divided into three forms:
- Raw Materials: Raw materials are the basic things/objects or key components required for the production of any item.
- Work-in-progress: These are the semi-manufactured inventories, e. when the goods are still in the process of manufacturing and are yet to be finished.
- Finished Goods: Finished goods refer to the final goods that are ready for sale or that can be stored in the godowns as stocks for future consumption.
The name of inventories may differ from one company to another. However, the process of inventory management always remains the same. For any organization, managing the three classified forms of inventory is very important since they vary according to the scale, size, and nature of the business. Some companies even use a new type of inventory namely ‘supplies’ which refers to the bulbs, fuel, plants, oil, etc. The supplies play an integral part in the production and form a small part of the inventory.
The motive of Inventory Management
In general, there are three main motives for inventory management:
The business environment is dynamic and one cannot predict the future as there are chances that the business may face a spurt in the demand by the customers. Precautionary motive refers to managing the inventory in order to avoid any unpredictable loss in the future.
In the future, a company may face situations such as the unavailability of raw materials or finished goods. Transaction motive entails avoiding such situations or any other bottlenecks by managing inventories.
Price fluctuations occur frequently and a company can take advantage of this situation in the near future by holding inventories for the stipulated time. This is termed a speculative motive.
Inventory Management is the core process that marks the success or failure of any retail store. It is an integral component of Retail Management. That is why our course materials for PGDM in Retail Management include lucid lessons on Inventory Management. We provide our students with all the requisite knowledge and skills in Inventory Management that eventually makes them sought-after candidates for the industry.