inventory

Examples of inventory in the following topics:

• Dangers Involved in Inventory Management

  • Excessive inventory means idle funds which earn no profits; inadequate inventory means lost sales.
  • The scope of inventory management also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns, and defective goods and demand forecasting.
  • However, it is not well advised for the firm to keep low inventory levels, since inadequate inventory means the firm does not have sufficient raw materials for production.
  • Inadequate inventory also means not ample goods to sell.
  • Inflation encourages the firm to purchase more inventory, exposing them to excessive inventory.

• Benefits of Inventory Management

  • The intent of inventory management is to continuously hold optimal inventory levels.
  • The scope of inventory management concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods, and demand forecasting.
  • Inventory management involves systems and processes that identify inventory requirements, set targets, provide replenishment techniques, report actual and projected inventory status, and handle all functions related to the tracking and management of material.
  • Inventory management also can help companies improve cash flows.
  • Companies with effective inventory management do not have to spend large capital balances for purchasing enormous amounts of inventory at once.

• Inventory Techniques

  • These methods are used to manage assumptions of cost flows related to inventory.
  • Assume that both Beginning Inventory and beginning inventory cost are known.
  • From them the Cost per Unit of Beginning Inventory can be calculated.
  • Each time, purchase costs are added to beginning inventory cost to get Cost of Current Inventory.
  • Inventories U.S.

• Inventory Turnover Ratio

  • Inventory turnover is a measure of the number of times inventory is sold or used in a time period, such as a year.
  • The equation for inventory turnover equals the cost of goods sold divided by the average inventory.
  • Average days to sell the inventory = 365 days / Inventory turnover ratio
  • The purpose of increasing inventory turns is to reduce inventory for three reasons.
  • Calculate inventory turnover and average days to sell inventory for a business

• Inventory Costs

  • Specific identification is a method of finding out ending inventory cost.
  • Weighted Average Cost is a method of calculating Ending Inventory cost.
  • Assume that both Beginning Inventory and beginning inventory cost are known.
  • From them the Cost per Unit of Beginning Inventory can be calculated.
  • Each time, purchase costs are added to beginning inventory cost to get Cost of Current Inventory.

• Impact of Modifying Inputs on Business Operations

  • Inventory management is primarily about specifying the scope and percentage of stocked goods.
  • The scope of inventory management concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods, and demand forecasting.
  • Companies that rely on the sale of physical goods -- i.e., those that must carry inventory -- must manage inventory in such as way as to decrease expenses as much as possible.
  • Since inventory is such a prevalent expense, accurate forecasting is of the utmost importance.
  • Inventory management is a modifying input that can impact financial forecasts

• Inputs to the Production Schedule

  • Inventory management is primarily about specifying the shape and percentage of stocked goods.
  • The scope of inventory management concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods, and demand forecasting.
  • It also involves systems and processes that identify inventory requirements, set targets, provide replenishment techniques, report actual and projected inventory status, and handle all functions related to the tracking and management of material.
  • However, in practice, inventory is to be maintained for consumption during variations in lead time.
  • So bulk buying, movement, and storing brings in economies of scale, thus inventory.

• ABC Technique

  • The ABC analysis is a business term used to define an inventory categorization technique often used in material management.
  • It is also known as "Selective Inventory Control. " Policies based on ABC analysis:
  • The ABC analysis suggests that inventories of an organization are not of equal value.
  • Thus, the inventory is grouped into three categories (A, B, and C) in order of their estimated importance.
  • Differentiate different types of inventory items based on ABC inventory analysis

• Just-in-Time Technique

  • But JIT relies on other elements in the inventory chain.
  • Cutting setup time allows the company to reduce or eliminate inventory for "changeover" time.
  • Small or individual lot sizes reduce lot delay inventories, which simplifies inventory flow and its management.
  • A company without inventory does not want a supply system problem that creates a part shortage.
  • Discuss the benefits and disadvantages of using a Just-In-Time (JIT) inventory system

• Calculating the Cash Flow Cycle

  • =Inventory conversion period + Receivables conversion period – Payables conversion period
  • The inventory conversion period or "Days inventory outstanding" emerges as interval A→B (i.e., owing cash→being owed cash)
  • To estimate its RATE, we note that Accounts Receivable grows only when revenue is accrued; and Inventory shrinks and Accounts Payable grows by an amount equal to the COGS expense (in the long run, since COGS actually accrues sometime after the inventory delivery, when the customers acquire it).
  • Inventory conversion period: Rate = COGS, since this is the item that (eventually) shrinks inventory.
  • Payables conversion period: Rate = [inventory increase + COGS], since these are the items for the period that can increase "trade accounts payables" (i.e., the ones that grew its inventory).