Inventories are a key element of any company because they include raw materials, materials, products in process and finished products to be distributed. That is, the inventory represents a significant part of the capital in the form of material, which is why an optimal management and adequate control of it, allows the company to meet the demands of the commercial market.
What is an inventory?
An inventory or stock consists of all tangible and existing goods, with immediate availability for processing, consumption or sale, which according to their function and their level within the production chain project their potential and provide benefits to the company.
On the other hand, it is also known as inventories to the administrative part that is responsible for verifying that the quantities of the warehouse coincide with those in a documentary record to maintain control of the different items.
Inventory management is essential to ensure the optimal functioning of a company. Therefore, they are considered as a basic tool that supports the flow of the supply chain.
Types of inventories
There is a wide variety of inventories, which can be classified according to their specific objectives.
Inventories according to their form
Raw Material Inventories
Within this type are the inputs and raw materials with which the products are made, but which have not gone through the transformation process.
Inventories of products in process
Are those goods that are in the manufacturing process, their transition leads to the production of finished products. The count of them includes quantity of materials, labor and manufacturing costs.
Inventories of finished products
Items that are the result of the production chain and are ready for sale and acquisition by the customer.
Inventory of factory supplies
It is used to know the materials that help in the production of products, but with the particularity that does not allow them to be quantified exactly.
These are the assets that the company has to sell directly without them having gone through a process of transformation or production.
Inventories according to their function
Security or reservation inventories
They are goods that are used in emergencies when unplanned situations occur in production or when demand increases diligently.
This type of inventory is required when there are two operations whose production rates do not have the ability to synchronize.
Inventories in transit
They are related to the status of the value chain through which all the materials and products raised in order pass, but have not been delivered to the company.
They are the result of the overproduction that has been carried out with the objective of reducing costs per unit of purchase. Its main characteristic is that it is always an amount greater than that of the current demand.
Forecast or seasonal inventories
It comes from production that exceeds the requirements in times of low demand, in order to cover the quantities in times of high demand.
Inventories according to logistics
They are among the levels of the supply channel that are required in manufacturing operations.
Stock inventories for speculation
Products and raw materials are acquired to speculate prices and in turn to contemplate the production requirements in possible increases in demand at specific times.
Inventories of existence of a regular or cyclical nature
SThey are those that are needed to know the average demand at the time of successive replenishment
Inventory of security stocks
These can be established as a protection resource that responds to the variability of the demand for stocks and the time to replenish the stock.
Inventories of obsolete, dead or lost stocks
Within this type are the products that due to various circumstances (expiration, deterioration or theft) are now depleted, cannot be distributed and therefore are losses.
Other kinds of inventories
It is the list that corroborates the existence of products and raw materials that are in stock.
It refers to the minimum quantity of items available in the warehouse that are necessary to meet the current demand of customers. However, they tend to increase.
They allow to know and establish the maximum amount of merchandise that can be stored, since an excessive increase can mean increases in storage costs, as well as the reduction of assets.
¿Why is it useful to keep inventories?
In a company, inventory is essential and maintaining optimal management helps to make decisions that directly impact the production chain and competitiveness that reflects its ability to meet market demand in a timely manner.
The most relevant reasons that determine the importance of raising and maintaining an inventory are:
- Predictability: Inventories help plan a production schedule, which is necessary to determine the amount of raw material and supply, and maintain a balance between what is required and what will be processed.
- Fluctuations in demand. The quantity of goods required is not always known exactly. However, you must always have an inventory reserve that meets the demands of customers or production on time.
- Supply instability. Inventories support a company in the lack of reliability from suppliers or when it is difficult to ensure the existence of a product due to scarcity.
- Price protection When the exact amount of inventory that helps meet the demand is purchased, additional purchases that impact on cost inflation are eradicated.
- Quantity discounts. Generally when you buy in large quantities you get significant discounts.
- Lower order costs. When a larger quantity of an item is purchased, but less frequently, the costs are lower than buying frequently in small quantities, this in the future results in a higher expense. It is advisable to issue global purchase orders adjusted to the dates of departure and receipt of existing units.
Inventory accounting systems
To maintain adequate inventory control, there are accounting systems, which generate benefits in commercial and financial processes.
There are two basic systems:
Periodic Inventory System
Under this method, the company does not carry out a continuous registration of the stock, but rather makes the existence count at the end of a period and the results are reflected in a financial report.
This system is primarily characterized by:
- Its cost is high as it is required to stop the activity of the company to account for the merchandise, which implies a significant expenditure of resources.
It is not known exactly the stocks at all times, Therefore, it is not possible to keep track or product policy.
- No se conoce con exactitud las existencias en todo momento, Por lo tanto, no es posible llevar un seguimiento ni una política de productos.
Permanent Inventory System
With this system it is possible to have a continuous record of the stocks and costs of the products or merchandise that have been sold.
The perpetual method points out the following advantages:
- It helps reduce costs and offers better customer service.
- It facilitates the physical census when an inventory verification is carried out.
- Optimizes the control of articles and the application of product techniques by having real-time information on inventory levels, rotations, price developments, etc.
Inventory valuation methods
It is very useful to know the methods of valuation of inventories that exist, as well as their fundamentals and particularities, since these determine the production point that is had in a period.
Among the most prominent methods are:
FIFO or PEPS method
Its mode of action is based on the first thing that enters is the first to leave. It adapts to the reality of the market using a recent cost assessment.
LIFO or UEPS method
It determines that all merchandise that enters last is the first to leave, this maintains a stable inventory value when a price increase occurs.
Arithmetic average cost method
It is done through an arithmetic operation of which, the result is the average of the unit prices of the items.
Harmonic or weighted average method
It is calculated by weighing the prices of the units acquired to later divide the total amounts by the total units.
Average mobile cost or balance method
According to the variations of inputs and outputs by purchase or sale, the value of the merchandise is calculated and successive averages are obtained.
Basic Cost Method
Fixed values are determined at minimum stocks. It is a method similar to LIFO, with the difference that this applies only to the minimum amount of inventory.
Retail price method
It allows you to estimate the inventories at the desired time. The physical inventory will be applied based on the sales prices marked on the items.
Market cost or the lowest
The lower stock price is taken as a reference, maintaining the accounting principle of conservatism that does not anticipate profits or foresee losses.
At Visual Mexico we have an inventory control software with which companies can increase their productivity, it is designed to optimize the performance of products and merchandise supply policies due to its comprehensive platform that helps in planning requirements of the materials.
With the inventory control software, you can obtain:
Security: it allows you to keep a count of each of the items that are available in the warehouse thanks to its ease of use, which allows you to keep track of stocks, avoid loss and optimize the quality of orders.
Order request: with this system you can know the status of the items, both the quantities and the exact location of each. This facilitates the realization of orders and purchases, reducing unnecessary expenses and generating a timely and useful investment.
Report: this business software allows you to record all the information that details each product, which becomes the basis of the reports it generates for each company and according to the sales mode in which it is implemented, both in traditional and virtual businesses.
Have a greater control and performance in the inventory movements is now possible with Visual México.
- What is an inventory?
- Types of inventories
- Inventories according to their form
- Inventories according to their function
- Security or reservation inventories
- Decoupling Inventories
- Inventories in transit
- Cycle inventories
- Forecast or seasonal inventories
- Inventories according to logistics
- Stock inventories for speculation
- Inventories of existence of a regular or cyclical nature
- Inventory of security stocks
- Inventories of obsolete, dead or lost stocks
- Other kinds of inventories
- ¿Why is it useful to keep inventories?
- Inventory accounting systems
- Inventory valuation methods
- Inventory control software