1.4.2 Inventory

In a general business scenario, inventory management is an integral part that helps in smooth running of the business and in determining the deficiency / excess of stock at any given time. Inventory includes the stock of raw material; semi finished goods and finished goods. Inventory management implies maintaining an accurate record of incoming and outgoing stock.

Companies can be of two types, Trading and Manufacturing. Trading companies just sell the goods as they are purchased with no modification in it whereas Manufacturing companies manufacture some

16

other goods (Finished Product) from the goods that are purchased (Raw Material). Let us understand this with the help of an example. A garment manufacturing company has its own production house. It purchases cloth from the market and makes shirts out of that cloth. The company then sells the Shirts in the market. In this case, Cloth is the raw material and Shirt is the finished product.

Manufacturing companies require a high level of inventory management, as they have to keep a record of both raw material and finished goods. These companies also have to look after the composition of the finished product. Continuing with the above example, company need to make a composition that for each Shirt manufactured, one metre of cloth, ten buttons and a reel of thread is required. Hence, the company needs to keep a record about all the items that are used in manufacturing of a finished product.

The task of maintaining inventory, with knowing in advance the material required for manufacturing a product, the deficiency or excess of stock, cost involved in the process of production and stock in hand is called Inventory Management. Inventory Management forms a major part of any business.