Which of the following is the main objective of engaging in inventory control?

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Inventory Management
At a time, when the world is crippling by multiple supply chain issues due to a shortage of crucial components, the significance of inventory management has once again hit the pedestal. Due to supply chain and component shortage issues, all the companies are facing difficulties in maintaining inventories, which has hit the demand-and-supply process in all the companies. Here, we will be discussing the significance of inventory management and how it can be monitored to overcome the shortcomings coming its way.

What is inventory management?
The start-to-finish process of ordering, storage, usage and sales of a company is called inventory management. This process includes managing raw materials, components and the final products, including their storage and processing. The main objective of inventory management is to ease off the storage and supply of inventories, thus avoiding the possibility of a shortage of any product.

Significance of inventory – asset or liability?
In the retail industry, a company's inventory, which generally includes raw materials and finished products, is its biggest asset. At the same time, a company's inventory is also its liability because it carries the risks of theft, damage and spoilage of the products on its shoulders. In the latter case, the inventory should either be sold in time or should be dismantled or sold at clearance prices.

Categories of the inventory account
The company's inventory counts into its current asset, as it needs to get cleared out within a particular timeframe. Before it gets accounted for in the company's balance sheet, a company's inventory should be physically measured or counted. In the case of large-sized inventories, companies rely on more sophisticated inventory management systems for real-time tracking of inventories. The chief account of a company's inventory includes four different categories:

• Raw materials – These are materials required for the production process in a company. These are either produced in-house or purchased from another company
  
• Work in progress – It includes the process of conversion or use of raw materials into a finished product
  
• Finished goods – These are the outcomes which are ready for sale by the company to the customers
  
• Merchandise – These are separate finished goods a company purchases from another company for future resale but get included in their inventory.

Tracking of inventory
The prime goals of inventory management are restocking inventory, knowing the prices of purchase and production and selling prices. In the case of small businesses, the stock maintained can be tracked manually or using basic spreadsheet formulas. However, in the case of a larger business model, maintaining the stock requires an enterprise resource planning (ERP) software or a Software As A Service (SaaS) application.

If a business is dealing with perishable items or items whose demand is time-sensitive, it is advisable to not sit on the inventory for a long time. Instead, prioritize the timing of storing and selling the components or products. It becomes even more difficult if the companies in question have complex manufacturing processes and supply chains involving several steps. To meet these challenges, accepting methods like just-in-time (JIT) and materials requirement planning (MRP) are preferred.

What happens if inventory management is not done properly?
Lack of inventory management in a company results in losses in the form of selling products at clearance prices, lagging behind competitors and negative sentiment around the company.

How an inventory in a business model can be tracked?
Inventory in small businesses can be tracked manually or on excel spreadsheets. For larger businesses, it is done by an enterprise resource planning (ERP) software or a Software As A Service (SaaS) application.

What are the most trusted methods of inventory management?
The methods of inventory management in trend are just-in-time (JIT), Materials Requirement Planning (MRP), Economic Order Quantity (EOQ) and Days Sales of Inventory (DSI).

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