Introduction Meaning and Definition of Inventory
In dictionary meaning of inventory is a “detailed list of goods, furniture etc.” Many understand the word inventory, as a stock of goods, but the generally accepted meaning of the word ‘goods’ in the accounting language, is the stock of finished goods only. In a manufacturing organization, however, in addition to the stock of finished goods, there will be stock of partly finished goods, raw materials and stores. The collective name of these entire items is ‘inventory’.
The term ‘inventory’ refers to the stockpile of production a firm is offering for sale and the components that make up the production. The inventory means aggregate of those items of tangible personal property which are held for sale in ordinary course of business, are in process of production for such sales, they are to be currently consumed in the production of goods or services to be available for sale.
Inventories are expandable physical articles held for resale for use in manufacturing a production or for consumption in carrying on business activity such as merchandise, goods purchased by the business which are ready for sale.
Management of Inventories
Inventories consist of raw materials, stores, spares, packing materials, coal, petroleum products, works-in-progress and finished products in stock either at the factory or deposits.
The maintenance of inventory means blocking of funds and so it involves the interest and opportunity cost to the firm. In many countries especially in Japan great emphasis is placed on inventory management. Efforts are made to minimize the stock of inputs and outputs by proper planning and forecasting of demand of various inputs and producing only that much quantity which can be sold in the market.