DEFINITION OF 'INVENTORY'
The raw materials, work-in-process
goods and completely finished goods that are considered to be the portion of a
business's assets that are ready or will be ready for sale. Inventory
represents one of the most important assets that most businesses possess,
because the turnover of inventory represents one of the primary sources of
revenue generation and subsequent earnings for the company's
shareholders/owners.
Possessing a high
amount of inventory for long periods of time is not usually good for a business
because of inventory storage, obsolescence and spoilage costs. However,
possessing too little inventory isn't good either, because the business runs
the risk of losing out on potential sales and potential market share as well.
Inventory management forecasts and strategies, such as a just-in-time inventory system, can help minimize inventory costs because goods are created or received as inventory only when needed.
Inventory management forecasts and strategies, such as a just-in-time inventory system, can help minimize inventory costs because goods are created or received as inventory only when needed.
Just In Time - JIT
DEFINITION OF 'JUST IN TIME - JIT'
An inventory strategy companies employ
to increase efficiency and decrease waste by receiving goods only as they are
needed in the production process, thereby reducing inventory costs.
DEFINITION of 'Economic Order Quantity - EOQ'
An inventory-related equation that determines the optimum order quantity
that a company should hold in its inventory given a set cost of production,
demand rate and other variables. This is done to minimize variable inventory
costs. The full equation is as follows:
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