Inventory Management

AAA

DEFINITION of 'Inventory Management'

The overseeing and controlling of the ordering, storage and use of components that a company will use in the production of the items it will sell as well as the overseeing and controlling of quantities of finished products for sale. A business's inventory is one of its major assets and represents an investment that is tied up until the item is sold or used in the production of an item that is sold. It also costs money to store, track and insure inventory. Inventories that are mismanaged can create significant financial problems for a business, whether the mismanagement results in an inventory glut or an inventory shortage.

INVESTOPEDIA EXPLAINS 'Inventory Management'

Successful inventory management involves creating a purchasing plan that will ensure that items are available when they are needed (but that neither too much nor too little is purchased) and keeping track of existing inventory and its use. Two common inventory-management strategies are the just-in-time method, where companies plan to receive items as they are needed rather than maintaining high inventory levels, and materials requirement planning, which schedules material deliveries based on sales forecasts.

RELATED TERMS
  1. Average Inventory

    A calculation comparing the value or number of a particular good ...
  2. Shadow Inventory

    A term that refers to real estate properties that are either ...
  3. Marketing

    The activities of a company associated with buying and selling ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors ...
  5. Inventory Turnover

    A ratio showing how many times a company's inventory is sold ...
  6. Pricing Power

    An economic term referring to the effect that a change in a firm's ...
RELATED FAQS
  1. What does days sales of inventory (DSI) represent as a ratio?

    The days sales of inventory (DSI) is a ratio intended to indicate how well or how poorly a company is functioning in terms ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  2. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  3. Fundamental Analysis

    Analyzing Retail Stocks

    To analyze retail stocks, investors need to be aware of the most common metrics used. Find out what they are.
  4. Fundamental Analysis

    Spotting Creative Accounting On The Balance Sheet

    Companies have ways of manipulating their balance sheets that investors should be aware of.
  5. Markets

    Company Survival: Cash Conversion Cycle Is Key

    Find out how to use this figure to analyze a firm's financial condition.
  6. Fundamental Analysis

    The Future of Big Pharma Stocks

    A look at the future health of big pharma stocks.
  7. Trading Strategies

    How to Do the Fundamental And Technical Combo Trade

    Fundamental and technical analyses should be viewed as complementary rather than competing practices. When combined, these two methods can greatly strengthen your game.
  8. Entrepreneurship

    New Tech Capitals Emerging In Various U.S. States

    While Silicon Valley has long been recognized as the home of tech giants, an increasing number of cities around the country are attracting tech startups.
  9. Mutual Funds & ETFs

    Want to Go Long Natural Gas? Eye the UGAZ ETN

    Is UGAZ the best way to play natural gas? Maybe not.
  10. Chart Advisor

    These Oil Service Stocks Are Ready For A Move Higher

    In the oil services sector, active traders have been trying hard to establish a floor and the double bottom pattern that is appearing on the chart suggests that a short-term reversal could be ...

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center