Inventories are a set of ordered and detailed goods that are part of the property of a company or a particular person at a given time. Inventories are used to know the current equity situation of a company, which facilitates production processes and order fulfillment.

The inventories also serve to have a better knowledge of the products that are sold by catalog, to know how much merchandise is left and to place the orders when it is considered necessary. At present, inventories are generally kept in databases, centrally to an entire company or to one person.

What is the importance of inventories?

Inventory is a very important device for development, both for large, medium and small businesses. Mismanagement can be the cause of generating dissatisfied customers due to the failure to comply with the demand, in addition to generating financial problems that can lead the company to bankruptcy.

Undoubtedly, for any type of company, inventories are of vital importance, since the basis of any organization lies in the purchase and sale of goods and services, considering necessary the existence of inventories, which allow control of the merchandise and at the same time the due economic reports of the company can be originated.

What are the components of inventories?

There are four main components when carrying out any inventory, which are:

Control of the raw material.

These are the materials that the company has “raw”, which will require a manufacturing process to become a final product for sale.

Fabrication process.

This component includes the raw material that is in the process of transforming finished products through a manufacturing process.

Finished products.

This part of the inventory corresponds to the products that have already been manufactured and are ready for sale.


These are finished products that are in warehouses for distribution if it is a factory, or merchandise purchased from a supplier and is ready for immediate resale if it is a store.

Inventory types and their classification

Depending on the products that you want to register in the inventories, these are divided into several types, which have different functions and well-defined purposes. Of which we can mention:

Perpetual Inventory:

This inventory shows in a fully updated way, the quantity of articles or products in the warehouse or warehouse in a specific way. By managing a record of the products in stock and those that have already been sold with their respective price, a total control of the exits and the entrances of the merchandise is carried out.

Intermittent Inventory:

This is characterized by being an inventory that is carried out on several occasions during the year, and it can be used for multiple reasons.

Initial inventory:

It is recommended to do this inventory at the beginning or at the beginning of a production process, where all the assets of the corporation are recorded. This takes place at the beginning of the fiscal year. The initial inventory shows the company’s balance before the opening of purchases, production or before the sale of existing inventory is made.

Final inventory:

These inventories are carried out at the close of the fiscal year, generally carried out on the last day of the fiscal year. It is used to determine the new state of the capital of the company.

Physical inventory:

This is a totally real inventory, which is based on counting, weighing and measuring all the products that are in the warehouse or warehouse.

Inventory in Transit:

It is an inventory whose purpose is to establish the production operations that are related to the company, customers and suppliers. This inventory reflects all orders that have not been received and are in transit.

Mixed Inventory:
This inventory shows the items of the merchandise or the specific batches that cannot be identified.

Maximum Inventory:

It is used to forecast or calculate the demand for production. In some products this inventory can present large quantities, due to the crowd control approach used.

Minimum Inventory:

This is done to establish the minimum amounts that must be kept in the deposit.

Raw Material Inventory:

This inventory is used to keep a record of the entire list of materials that will be used for the production of products that have not passed through the manufacturing line.

Inventory of Finished Products:

In this inventory all merchandise and all manufactured items that are available for sale are recorded.

Factory Supply Inventory:

Here are indicated the materials that will be used to produce those products that cannot be accurately accounted for. These products can be: lubricants, nails, paint, etc.

What are the objectives of the inventories?

The main objectives of an inventory control system is to bring the items or products in the least expensive way to customers in the shortest time possible. It also helps to:

  • Avoid stockouts : Help customers have access to items when they need or want them.
  • Avoid excess inventory : Optimal inventory control helps balance a fine line between too much and too little. Having too much merchandise in distribution centers or in stores becomes expensive, takes up space and limits the space for sale.
  • Efficiently transport goods : Inventory efficiency is defined as the ability to receive and store as quickly as possible the products or articles that enter and retrieve and ship when they leave or are dispatched.
  • Maximize profit margins : Well-managed inventory control is often the key to achieving profit margin goals.

What are the inventory control methods?

Companies use different methods in their inventory depending on the characteristics of the business model they have. There are several ways to control and manage the existing products in the inventories, obeying the stored quantities and their classification.

  • ABC method:

With this method, the inventory stocks are divided into three classes: A, B and C. The articles are divided into these three groups in order of importance, in reference to the price of the product. Those of class A would be the most expensive, the B of intermediate price and the C would be the cheapest products.

  • Basic Economic Order Quantity (CEP) model:

In this method we try to place the minimum cost of the inventory by means of a mathematical formula. To do this, you can calculate what the order will be and the time of purchase, which will reduce the cost as much as possible.

  • Reorder point:

This method refers to the need to form a time point for the renewal of orders made to suppliers, bearing in mind the receipt and placement of the order.

  • Just-in-time inventory control:

The purpose of this model is focused on trying to reduce the inventory of the company that is in the production stage.

How to do a physical inventory?

Carrying out a physical inventory is not simply counting and checking the existing physical merchandise against what is in the system, but actually establishing the value of the merchandise, checking its movement, and taking action on the articles that are in disuse. We can mention some steps to carry out a physical inventory.

1. Plan:

Choose the best day to count and organize the products. Collect all the items that are the same in one place. Pack smaller items, label that merchandise. Call the staff ahead of time and make sure everyone has the supplies and stationery they will need to do the inventory.

2. Organize the existence of products by type:

Make sure that all merchandise is in the warehouse or in its designated area before you start counting it. If all the merchandise is properly organized and identified, this task should not be very complicated.

3. Clean temporary deposits:

If temporary warehouses or warehouses are used to control items that are in transit, they must be free or empty, both physically and in accounting terms.

4. Simplify the accounts:

You must establish a unit of measure for each item. If you have a management system this will be easier, but the main thing is to establish a unit of measurement that is practical and functional.

5. Carry out the count in an orderly fashion:

When counting the physical items, the most important thing is to do it without the personnel in charge knowing the amount of products that you have registered in your digital inventory system, to avoid complications and confusion on the part of it.

6. Adjust the amounts:

Once the count is finished (it is recommended to do it twice and by two different people), you must verify the physical quantities against your digital inventory and make the pertinent adjustments in your system, so that what is really there is in physical form.

7. Properly document the surplus:

When you finish counting the merchandise that you set aside as old or damaged inventory, ask the administrative staff, the internal control staff, or the company’s lawyers, what is the process that should be used with said merchandise.

Conclusions on the use of inventories

It is vitally important that companies have their inventory under control and well ordered, since the supply and correct distribution of existing products depends on them, placing them at your disposal at the required time. Inventories are essential for all types of companies, which will guarantee the control of the merchandise and will generate economic reports of the company.

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Samantha Robson
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Dr. Samantha Robson ( CRN: 0510146-5) is a nutritionist and website content reviewer related to her area of ​​expertise. With a postgraduate degree in Nutrition from The University of Arizona, she is a specialist in Sports Nutrition from Oxford University and is also a member of the International Society of Sports Nutrition.

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