Inventory Management


DEFINITION of 'Inventory Management'

Inventory management is 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.


Loading the player...

BREAKING DOWN '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.

  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors ...
  2. Average Inventory

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

    A term that refers to real estate properties that are either ...
  4. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it ...
  5. Marketing

    The activities of a company associated with buying and selling ...
  6. Pricing Power

    An economic term referring to the effect that a change in a firm's ...
Related Articles
  1. Economics

    What is Involved in Inventory Management?

    Inventory management refers to the theories, functions and management skills involved in controlling an inventory.
  2. 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.
  3. 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.
  4. 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.
  5. Fundamental Analysis

    Spotting Creative Accounting On The Balance Sheet

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

    Company Survival: Cash Conversion Cycle Is Key

    Find out how to use this figure to analyze a firm's financial condition.
  7. Economics

    Explaining Appreciation

    Appreciation refers to an increase over time in the value of an investment or asset.
  8. Economics

    Calculating Long-Term Debt to Total Assets Ratio

    A company’s long-term debt to total assets ratio shows the percentage of its assets that are financed with long-term debt.
  9. Investing

    How Worried Should We Be About China?

    An economic slowdown, a freezing up in trade and plunging markets and currencies are casting a shadow across Asia—and the globe. How worried should we be?
  10. Investing Basics

    Learn How To Trade Gold In 4 Steps

    Trading spot gold or gold futures, equities and options isn’t hard to learn, but the activity requires skill sets unique to these markets.
  1. How can I calculate funds from operation in Excel?

    In general, the terms "work in progress" and "work in process" are used interchangeably to refer to products midway through ... Read Full Answer >>
  2. How is investing in a corporate bond different from buying shares of the company's ...

    Examples of just in time, or JIT, inventory processes are found in automobile manufacturing, drop shipping retailers, fast ... Read Full Answer >>
  3. What are the main objectives of cost accounting?

    Cost accounting is distinct and separate from general financial accounting, which is regulated by generally accepted accounting ... Read Full Answer >>
  4. 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 >>
  5. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  6. Can working capital be negative?

    Working capital can be negative if a company's current assets are less than its current liabilities. Working capital is calculated ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!