The Importance Of Inventory Management

3035 Words13 Pages
Introduction The easiest way to visualize inventory is by imagining money sitting in warehouses, on shelves in stores, in the backs of trucks, in containers at ports and so forth. Depending on the purpose and business of the company, inventory might be a significant asset on the balance sheet (Jacobs & Chase, 2011). The U.S. Census reported that the inventory to sales ratio was estimated at 1.31 for all businesses as of February 2014, which means that organizations have 31% more inventory than needed to cover their sales (U.S. Department of Commerce, 2014). Another statistic indicates that holding inventory, on average, costs a U.S. business about 30% to 35% of that inventory’s worth. Altogether, inventory of businesses was worth $1.7 trillion in February 2014 (U.S. Department of Commerce, 2014), and therefore cost them a half-trillion dollars. However, when thinking about inventory, not only the obvious holding costs are to be taken into account, but also the cost of production changes, cost of ordering and costs shortages in inventory may pose to the business (Jacobs & Chase, 2011). Seeing the worth of inventory itself and the cost associated with it, inventory management poses an important field of consideration for organizations and their managerial accounting. This paper is meant to define inventory management, show its importance as well as advantages and disadvantages. Furthermore, we will introduce businesses providing inventory management services and systems to organizations, and the industries that require inventory management. To get a broader view, we will also discuss whether or not federal, state, and local governments should have inventory managements and what keeping inventory in other locations implies for insura... ... middle of paper ... ...oads or military supplies. Governments have started using inventory management systems to improve their balance sheets, and they should continue to do so for efficiency and cost saving purposes especially in a time where the federal government, states, and communities are fighting debt. Lastly, inventory management can impose challenges, such as proper processing of items if the company operates in multiple locations. A company must set forth internal control systems and safety measures to keep track of their stocks as well as items they keep but sell on behalf of others, given the large values associated to them. Overall, with proper inventory management and the use of provided systems and solutions, organizations in all areas of operation will be able to maintain reasonable amounts of stock and keep track of their items while remaining efficient and saving cost.
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