What Is Inventory?

The term inventory refers to the raw materials used in production as well as the
goods produced that are available for sale. There are three types of inventory
such as raw materials, work-in-progress, and finished goods. It is
categorized as a current asset on a company's balance sheet.

Understanding Inventory

Inventory is a very important asset for any company. It is defined as the array
of goods used in production or finished goods held by a company during its
normal course of business. There are three general categories of inventory,
including raw materials (any supplies that are used to produce finished goods),
work-in-progress (WIP) and finished goods or those that are ready for sale.

As noted above, inventory is classified as a current asset on a company's

balance sheet, and it serves as a buffer between manufacturing and order
fulfillment. When an inventory item is sold, its carrying cost transfers to the
cost of goods sold (COGS) category on the income statement.

Inventory can be valued in three ways. These methods are the:

 FIFO method, which says that the COGS is based on the cost of the
earliest purchased materials. The carrying cost of the remaining
inventory, on the other hand, is based on the cost of the latest purchased
materials
 LIFO method, which states that the COGS is valued using the cost of the
latest purchased materials, while the value of the remaining inventory is
based on the earliest purchased materials.
 Weighted Average method, which requires valuing both inventory and
the COGS based on the average cost of all materials bought during the
period.

Inventory Management
The goal of inventory management is to find a balance between a company’s
supply of inventory and buyer demand for it. While inventory can be one of a
company’s biggest assets, it can also be a major liability. That’s because
inventory costs money, and without proper management, it can become
unbalanced, tying up a company’s cash resources in overstock or draining
revenue through lost sales due to stock outs.
Effective inventory management helps prevent the many expenses and potential
perils involved in carrying excess inventory, such as:

 Storage

 Spoilage or theft

 Waste and sustainability issues

 Declining demand/value

 Tax ramifications

Efficient inventory management also helps companies steer clear of the

consequences of the opposite problem—not having enough inventory:

 Stalled production lines

 Missed production and delivery windows

 Loss of customer loyalty, reputation, and market share

 Lower profits

Possessing a high amount of inventory for a long time is usually not a good
idea for a business. That's because of the challenges it presents, including
storage costs, spoilage costs, and the threat of obsolescence.

Possessing too little inventory also has its disadvantages. For instance, a
company runs the risk of market share erosion and losing profit from potential
sales.
Steps in managing inventory
The foundational steps involved in managing the inventory are as follows:-

1. Planning and ordering: Ordering the right products, raw materials, or

components at the right time takes a lot of data. It starts with
understanding product demand through marketing and sales forecasts,
considering seasonal changes and evaluating economic factors.
2. Delivery: Goods are delivered to the company’s facility. For
manufacturers, this means receiving raw materials and subcomponents.
For wholesale distributors and retailers, it means receiving finished goods
that are ready to sell to customers.
3. Review and storage: Inventory is typically catalogued in a warehouse
management system for easy tracking using stock-keeping units (SKUs)
and universal product codes (UPCs). Organizing the storage area
logically, such as arranging product locations in a pattern and labelling
each zone and shelf, makes products easy to sort, locate, and manage. An
organized system ensures that older inventory is used first to prevent it
from becoming shelf-worn or spoiled. Advanced warehouse solutions can
also identify available space and how to best utilize it.
4. Selling: When a distributor or end customer places an order, the
fulfillment process kicks in, verifying stock availability, pulling products
using SKUs, and preparing items for delivery. Packing and shipping
workflows are essential for timely delivery. Tracking the shipping
process enables order status updates that improve customer satisfaction.
5. Reporting and auditing: Accurate recordkeeping tracks inventory at
every step, from arrival to storage, handling, and delivery. Regular
auditing whether manually or through automated systems like barcode
scanners ensures that physical counts match records helping identify
discrepancies.
6. Reordering: Businesses can set reorder points to trigger replenishment
when inventory hits certain metrics, such as stock levels, turnover rates,
or cycle times. Based on demand or item type, they can employ periodic
replenishment schedules or top-off replenishment tactics to adjust stock
levels based on demand.

Benefits of inventory management

To keep up with rapidly changing customer demands, businesses must have an
accurate picture of their inventory. Even though implementing inventory
management takes time, effort, and financial investment in processes and
infrastructure, it’s essential to business success. Some of its benefits are as
follows:-

1. Increased revenue: Making sure the right products are available at the
right time and place to meet customer demand quickly can increase sales
and revenue.
2. Reduced costs: Minimizing excess inventory through accurate tracking
and demand forecasting lowers the carrying costs associated with storage,
handling, and obsolescence.
3. Improved customer service: Having the right products available when
customers need them bolsters satisfaction, loyalty, and brand reputation.
4. Heightened efficiency and productivity: Leveraging automated tools
for tracking and management significantly improves efficiency, reduces
manual errors, and boosts overall productivity within the organization.
5. Improves cash flow: Analysing inventory levels improves cash flow
management by making sure operating capital isn’t tied up in stagnant
inventory.
6. Forecast accuracy: Adhering to effective inventory management
techniques hones demand forecasting accuracy so businesses can
anticipate market trends and plan inventory levels more effectively.
7. Risk mitigation: Staying ahead of challenges like seasonal variations,
supply chain disruptions, and market fluctuations mitigates risks and
maintains operational stability.
8. Reduced waste: Reducing the number of products that become outdated,
expired, or damaged reduces waste, improves sustainability efforts, and
increases overall profitability. Deploying strategies like FIFO helps
optimize inventory rotation.

Inventory Feed

Inventory Feed is a supplier provided data that contains inventory information.

It can be known as an inventory availability data export tool. They allow users
to create a programmatic export of selected inventory data, ready to be
consumed by any inventory-aware system.
Each time you upload the inventory feed, product information is updated
incrementally. You only need to include products for which the availability or
price has changed since the previous update.

What goes into an Inventory Feed?

Your inventory feed should include the quantity available and various product
identifiers like the SKU, MPN, and UPC.
Sometimes information like wholesale costs, when items are projected to be
back in stock, MSRP, MAP, and product images are included.
The below data of Inventory feed has few product identifiers like:-
MPN- Manufacturer Part No. & UPC – Universal Product Code
Brand Product Product Stock
S. No. MPN UPC Inventory Status
Name Category Status Qty
84656700312
1 123_AM_SC_4MANHA Amazonia Patio Furniture Active Remain "In Stock" 50
8
123_SC 84040263946
2 Amazonia LTL LTL - Out of Stock 0
KINGS_DEEP4_BLU 6
123_SC 2CANNES 84006224178
3 Amazonia Patio Furniture Active Remain "In Stock" 50
GR_LOT 8
123_KINGS_DEEP4 84040263945
4 Amazonia LTL LTL - Out of Stock 0
BK_PAR 9
84576000046 Continue to remain
5 123_CSN LIBERSIDE4 Amazonia Patio Furniture Active 0
0 "Out of Stock"
123_SC 2OBERON 84006224171 Continue to remain
6 Amazonia Patio Furniture Active 0
BK_GR 9 "Out of Stock"
123_SC 4CONCARM 84006224175
7 Amazonia Patio Furniture Active Remain "In Stock" 50
BK_PAR 7
123_GEN_SC_NINIA2P 89350735968 Continue to remain
8 Amazonia Patio Furniture Active 0
C 5 "Out of Stock"
123_SC 2CANNES 84006224323
9 Amazonia Patio Furniture Active Remain "In Stock" 50
BK_LOT 2

Why should I use Inventory Feeds?

Ultimately, inventory feeds provide a better experience for end customers and
retailers. Here are a few reasons why:
1) Inventory feeds give you retailer visibility into what is in stock
By providing your retailer with up-to-date inventory information, you prevent
them from listing out-of-stock items on their site as in stock. Selling out-of-
stock orders becomes costly, as cancelling orders is expensive and tarnishes
your reputation.

2) Inventory feeds set customer expectations

When your retailers have up-to-date site listings, customers can adequately
gauge their expectations and only order currently available items.

3) Inventory feeds increase efficiency

Inventory feeds prevent redundant questions from your retail partners about in-
stock items and backorder dates, as inventory information is directly provided to
them. This allows you and your retailers to use your time more efficiently and
get orders out quickly.

4) Inventory feeds prevent invoice disputes

Inventory feeds give your retailers a complete financial understanding of
wholesale costs. This, in turn, reduces the occurrence of invoice disputes and
allows them to price their products appropriately.