Inventory refers to the stock of finished goods a company sells, as well as the raw materials it has on hand to produce them. Because these goods and materials represent major drivers of business costs as well as revenues, the timely and cost-effective management of inventory is very important to the ultimate profitability of any business that sells physical goods.
Inventory is a key part of the broader area of supply chain management, which is the entire system of moving products from suppliers to end-users and consumers. It is an intermediate step in a process that begins with the procurement of raw materials and transporting them to manufacturing facilities; finished products are then stored (or “warehoused”) as inventory until logistics networks deliver them to end users and consumers.
Because it sits in the middle of the supply chain, inventory and warehouse management requires close attention to both supply and demand sides of the business. Shortages in raw material inputs can result in costly production delays, risking sales. Similarly, planning for product sales and demand forecasting is also critical, as holding excess inventory can be costly. And, on both the supply and demand side, quality control is essential to minimizing returns of products and upholding the company’s reputation in the market.
