Definition of Inventory
Inventory is defined as the stock of any item or resource used in an organization. An inventory management system is the set of policies and controls that monitors levels of inventory and determines (a) what levels should be maintained, (b) when stock should be replete hed. and (c) how large orders should be.In a broader context. inventory can include inputs such as human. financial. energy, equipment, and physical items such as raw materials; outputs such as parts. components, and, finished goods; and interim stages of the process. such as partially finished good or work-in-process (WIP). The choice of which items to include in inventory depend on the organization. A manufacturing operation can have an inventory of personnel. machines. and working capital. as well as raw materials and finished goods. An airline can have an inventory of seats: a modern drugstore. an inventory of medicines, batteries. and toys: and an engineering firm. an inventory of engineering talent. By convention. manufacturing inventory generally refers to materials that contribute to or become part of a firm's product output. In services, inventory generally refers to the tangible goods that are sold and the supplies necessary to administer the service. Customers waiting in line at a service operation also can be viewed as inventory similar to plans waiting to be processed in a fac ory.The basic purpose of inventory analysis in manufacturing and bookkeeping services is to specify (a) when items sho ld be ordered and (D) how large the order should be. Recent trends have modified the simple questions of "when" and "how many." As we saw in an earlier chapter on supply chain management, many firms are tending to enter into longer-term relationships with vendors to supply their needs for perhaps the entire year. This changes the "when" and "how many to order" to "when" and "how many to deliver.