Editing Inventory (section)

==Business inventory==

===Reasons for keeping stock===
There are five basic reasons for keeping an inventory:
# Time: The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amounts of inventory to use in this [[lead time]]. However, in practice, inventory is to be maintained for consumption during 'variations in lead time'. Lead time itself can be addressed by ordering that many days in advance.<ref>{{Cite web |last=NetSuite.com |date=2023-02-26 |title=What Is Inventory? Types, Examples and Analysis |url=https://www.netsuite.com/portal/resource/articles/inventory-management/inventory.shtml |access-date=2023-06-09 |website=Oracle NetSuite |language=en}}</ref>
# [[Seasonality|Seasonal demand]]: Demands varies periodically, but producers capacity is fixed. This can lead to stock accumulation, consider for example how goods consumed only in holidays can lead to accumulation of large stocks on the anticipation of future consumption.
# Uncertainty: Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods.
# [[Economies of scale]]: Ideal condition of "one unit at a time at a place where a user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory.
# Appreciation in value: In some situations, some stock gains the required value when it is kept for some time to allow it reach the desired standard for consumption, or for production. For example, beer in the [[brewing industry]].

All these stock reasons can apply to any owner or product.

=== Special terms used in dealing with inventory management ===
* ''[[Stock Keeping Unit]]'' (SKU) SKUs are clear, internal identification numbers assigned to each of the products and their variants. SKUs can be any combination of letters and numbers chosen, just as long as the system is consistent and used for all the products in the inventory.<ref>{{Cite web|title = SKUs and UPCs: do your products have a unique identity?|url = https://www.tradegecko.com/blog/skus-and-upcs-do-your-products-have-an-identity|website = www.tradegecko.com|access-date = 2015-11-23|url-status = live|archive-url = https://web.archive.org/web/20151123213941/https://www.tradegecko.com/blog/skus-and-upcs-do-your-products-have-an-identity|archive-date = 2015-11-23}}</ref> An SKU code may also be referred to as product code, barcode, part number or MPN (Manufacturer's Part Number).<ref>{{cite web|url=http://www.specialinvestor.com/terms/1072.html|title=Specialinvestor.com|website=www.specialinvestor.com|access-date=8 May 2018|url-status=live|archive-url=https://web.archive.org/web/20061231032227/http://www.specialinvestor.com/terms/1072.html|archive-date=31 December 2006}}</ref>
* "[[New old stock]]" (sometimes abbreviated NOS) is a term used in business to refer to merchandise being offered for sale that was manufactured long ago but that has never been used. Such merchandise may not be produced anymore, and the new old stock may represent the only market source of a particular item at the present time.
* [[ABC analysis]] (also known as [[Pareto analysis]]) is a method of classifying inventory items based on their contribution to total sales [[revenue]].{{citation needed|date=July 2023}} This can be used to prioritize inventory management efforts and ensure that businesses are focusing on the most important items.{{citation needed|date=July 2023}}

===Typology===
# Buffer/[[safety stock]]: Safety stock is the additional inventory that a company keeps on hand to mitigate the risk of stockouts or delays in supply chain. It is the extra stock that is kept in reserve above and beyond the regular inventory levels. The purpose of safety stock is to provide a buffer against fluctuations in demand or supply that could otherwise result in stockouts.
# [[Reorder level]]: Reorder level refers to the point when a company place an order to re-fill the stocks. Reorder point depends on the inventory policy of a company. Some companies place orders when the inventory level is lower than a certain quantity. Some companies place orders periodically.
# Cycle stock: Used in batch processes, cycle stock is the available inventory, excluding buffer stock.
# De-coupling: Buffer stock held between the machines in a single process which serves as a buffer for the next one allowing smooth flow of work instead of waiting the previous or next machine in the same process.
# Anticipation stock: Building up extra stock for periods of increased demand—e.g., ice cream for summer.
# Pipeline stock: Goods still in transit or in the process of distribution; e.g., they have left the factory but not arrived at the customer yet. Often calculated as: ''Average Daily / Weekly usage quantity X Lead time in days + Safety stock''.

===Inventory examples===
While [[accountant]]s often discuss inventory in terms of goods for sale, organizations—[[manufacturer]]s, [[service provider|service-provider]]s and [[not-for-profit]]s—also have inventories (fixtures, equipment, furniture, supplies, parts, etc.) that they do not intend to sell. Manufacturers', [[distribution (business)|distributor]]s', and wholesalers' inventory tends to cluster in [[warehouse]]s. [[Retailer]]s' inventory may exist in a warehouse or in a [[Retailing#Shops and stores|shop]] or store accessible to [[customers]]. Inventories not intended for sale to customers or to [[consumer|client]]s may be held in any premises an organization uses. Stock ties up cash and, if uncontrolled, it will be impossible to know the actual level of stocks and therefore difficult to keep the costs associated with holding too much or too little inventory under control.

While the reasons for holding stock were covered earlier, most manufacturing organizations usually divide their "goods for sale" inventory into:
* [[Raw materials]]: Materials and components scheduled for use in making a product.
* [[Work in process]] (WIP): Materials and components that have begun their transformation to finished goods. These are used in process of manufacture and as such these are neither raw material nor finished goods.<ref>{{cite web |last1=Jaiswal |first1=Vishal |title=Types of Inventory and Quality Standards |url=https://www.mechanicalsite.com/2019/12/types-of-inventory-and-quality-standards.html |archive-url=https://web.archive.org/web/20191221074849/https://www.mechanicalsite.com/2019/12/types-of-inventory-and-quality-standards.html |url-status=usurped |archive-date=December 21, 2019 |website=www.mechanicalsite.com |publisher=Mechanical Site |access-date=2 December 2019}}</ref>
* [[Finished goods]]: Goods ready for sale to customers.
* Goods for resale: Returned goods that are salable.
* Stocks in transit: The materials which are not at the seller's location or buyers' location but in between are "stocks in transit". Or we could say, the stocks which left the seller's plant but have not reached the buyer, and are in transit.
* Consignment stocks: The inventories where goods are with the buyer, but the actual ownership of goods remains with the seller until the goods are sold. Though the goods were transported to the buyer, payment of goods is done once the goods are sold. Hence such stocks are known as consignment stocks.
* Maintenance supply.

For example:

====Manufacturing====
A canned food manufacturer's materials inventory includes the ingredients to form the foods to be canned, empty cans and their lids (or coils of steel or aluminum for constructing those components), labels, and anything else (solder, glue, etc.) that will form part of a finished can. The firm's work in process includes those materials from the time of release to the work floor until they become complete and ready for sale to wholesale or retail customers. This may be vats of prepared food, filled cans not yet labeled or sub-assemblies of food components. It may also include finished cans that are not yet packaged into cartons or pallets. Its finished good inventory consists of all the filled and labeled cans of food in its warehouse that it has manufactured and wishes to sell to food distributors (wholesalers), to grocery stores (retailers), and even perhaps to consumers through arrangements like [[factory outlet|factory store]]s and outlet centers.

==== Capital projects ====
The partially completed work (or work in process) is a measure of inventory built during the work execution of a capital project,<ref>“Construction: one type of Project Production System”, Proceedings of ''13th Annual Conference of the International Group for Lean Construction.'' Sydney, Australia, 19–21 Jul 2005. pp 29–35</ref><ref>“Strategic Positioning of Inventory to match demand in a capital projects supply chain”, K. D. Walsh, J. C. Hershauer, I.D. Tommelein and T. A. Walsh, Journal of Construction Engineering and Management, Nov–Dec 2014, p 818</ref><ref>{{cite journal|title = New Era of Project Delivery – Project as Production System|first1=R. G. |last1=Shenoy |first2= T. R.|last2= Zabelle|journal= Journal of Project Production Management|volume = 1 |date = Nov 2016|pages =13–24  |url=https://www.researchgate.net/publication/312602707  |url-status=live |archive-url=https://web.archive.org/web/20170218063109/https://www.researchgate.net/publication/312602707_New_Era_of_Project_Delivery_-_Project_as_Production_System |archive-date=2017-02-18 }}</ref> such as encountered in civilian infrastructure construction or oil and gas. Inventory may not only reflect physical items (such as materials, parts, partially-finished sub-assemblies) but also knowledge work-in-process (such as partially completed engineering designs of components and assemblies to be fabricated).

====Virtual inventory====
A "virtual inventory" (also known as a "bank inventory") enables a group of users to share common parts, especially where their availability at short notice may be critical but they are unlikely to required by more than a few bank members at any one time.<ref>''Inventory and Logistics Operations'', CIPS Study Materials, Profex Publishing, 2012, page 54</ref> Virtual inventory also allows distributors and [[Fulfillment house|fulfilment house]]s to ship goods to retailers direct from stock, regardless of whether the stock is held in a retail store, stock room or warehouse.<ref>PLS Logistics, [http://info.plslogistics.com/blog/more-inventory-less-warehouse-space-how-virtual-inventory-works More Inventory, Less Warehouse Space: How Virtual Inventory Works] {{webarchive|url=https://web.archive.org/web/20180208123430/http://info.plslogistics.com/blog/more-inventory-less-warehouse-space-how-virtual-inventory-works |date=2018-02-08 }}, published 22 March 2016, accessed 7 February 2018</ref> Virtual inventories allow participants to access a wider mix of products and to reduce the risks involved in carrying inventory for which expected demand does not materialise.<ref>Symes, S., [https://smallbusiness.chron.com/purpose-creating-virtual-inventory-24491.html The Purpose of Creating a Virtual Inventory], ''Chron'' ([[Houston Chronicle]]), accessed on 14 July 2024</ref>

===Costs associated with inventory===
There are several costs associated with inventory:
* [[Ordering cost]]
* [[Setup cost]]
* [[Holding cost]]
*Shortage costs (the costs arising out of inability to supply, including lost revenue, reputational damage, and potential loss of customer loyalty).<ref>Accounting Insights, [https://accountinginsights.org/effective-inventory-management-to-reduce-shortage-costs/ Effective Inventory Management to Reduce Shortage Costs], published on 14 October 2024, accessed on 5 November 2024</ref>