What is inventory?
For companies that sell goods and services, inventory (or stock) may be called rightfully the "lifeblood" of the business. A healthy inventory flow enables sale closings, customer shipments, and productive work for company employees. Without this flow, the business dies. It should be no surprise to find that in many industries, a company's financial performance and position depend heavily on the firm's ability to manage inventory effectively and efficiently.
Inventory has several definitions:
In business, the primary definition—as used above and in the rest of this article—refers to goods, raw materials, and other tangible items that a business holds, intended ultimately for sale.
As a verb the term means to take count of (or list) units of a resource on hand at one point in time. A hotel business, for instance, might inventory the contents of a hotel room when a guest departs as a check against loss.
The term also refers to a list created for a specific purpose. A hospital might create an inventory (list) of medical equipment and supplies that should always be on hand in an operating room.
Companies that acquire, hold, and sell inventory face a double challenge. On the one hand, in-demand products have to be readily available for shipment when customers are ready to buy. On the other hand, acquiring and managing stock that meets this objective can be very costly (see the section on costs below). Accordingly, management in many companies gives substantial and constant attention to finding ways to improve stock management, while minimizing costs at the same time.
This article further defines, explains, and illustrates inventory related terms, mainstream methods for stock management, relevant accounting practices, and performance metrics.