Inventory management is nothing but management of idle resources which have future economic value. These resources are idle but are categorised as usable.Inventory management also maintains a supply for a demand pattern for a given financial investment.
It also deals with defining optimum policies and processes for procurement. Inventory is a list of goods available with a company as a stock. Material management and its tracking are all what comprises inventory management. Inventory management is prevalent in both production as well as in the service industry.
Other facets of inventory management are as follows:
Inventory balance reconciliation
· Target setting
· Actual and projected inventory status reporting
· Refill procedures
· Cycle counting support
· Keeping a track of lots
· ABC analysis- This kind of analysis includes segregating stock or inventory into three different categories- A, B and C. A means outstandingly important, B means average important while C means relatively unimportant. More attention should be given to A, less to B and more less to C category inventory.
Inventory is controlled to reduce the total cost of inventory. Varied costs involved are:
· Cost of shortage
· Cost of placing an order
· Cost of holding the stock
Inventory is divided into one of the following categories as below:
· Raw materials- They change their form and become finished goods.
· Components- The only difference with a raw material and component is that the components are converted into finished goods in an assembly operation while raw materials are converted into finished goods in a manufacturing operation.
· Maintenance, repair and operating inventories (MRO)- These include materials consumed by routine maintenance and repair of operating devices.
· In-process goods - These are helpful in case of variations and are basically goods in the process of manufacturing but not yet converted into finished goods.
· Resale goods- Goods which are bought for the purpose of reselling.
· Finished goods- Goods which are sold and delivered after getting manufactured from raw material state.
· Construction goods- Goods which are used in the construction of buildings/bridges.
· Hard/Soft Goods- These are categorized on the industry where there are used. For example in IT industry, soft goods will be web products and applications while hard goods will be computers and mice.