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. Inventory Turnover

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

    An economic term referring to the effect that a change in a firm's ...
  5. Marketing

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

    A financial measure of a company's performance that gives investors ...
Related Articles
  1. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

  2. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  3. Analyzing Retail Stocks
    Fundamental Analysis

    Analyzing Retail Stocks

  4. Spotting Creative Accounting On The ...
    Fundamental Analysis

    Spotting Creative Accounting On The ...

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center