Inventory

In the context of services, inventory refers to all work done prior to sale, including partially process information.

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).

The technique of inventory proportionality is most appropriate for inventories that remain unseen by the consumer, as opposed to "keep full" systems where a retail consumer would like to see full shelves of the product they are buying so as not to think they are buying something old, unwanted or stale; and differentiated from the "trigger point" systems where product is reordered when it hits a certain level; inventory proportionality is used effectively by just-in-time manufacturing processes and retail applications where the product is hidden from view.

One early example of inventory proportionality used in a retail application in the United States was for motor fuel.

Those companies (especially in metalworking) attempted to achieve success through economies of scope—the gains of jointly producing two or more products in one facility.

A variety of attempts to achieve this were unsuccessful due to the huge overhead of the information processing of the time.

VMI and CMI have gained considerable attention due to the success of third-party vendors who offer added expertise and knowledge that organizations may not possess.

This type of dynamics order management will require end-to-end visibility, collaboration across fulfillment processes, real-time data automation among different companies, and integration among multiple systems.

For example, organizations in the U.S. define inventory to suit their needs within US Generally Accepted Accounting Practices (GAAP), the rules defined by the Financial Accounting Standards Board (FASB) (and others) and enforced by the U.S. Securities and Exchange Commission (SEC) and other federal and state agencies.

[example needed] An organization's inventory can appear a mixed blessing, since it counts as an asset on the balance sheet, but it also ties up money that could serve for other purposes and requires additional expense for its protection.

Some organizations hold larger inventories than their operations require in order to inflate their apparent asset value and their perceived profitability.

The conflicting objectives of cost control and customer service often put an organization's financial and operating managers against its sales and marketing departments.

Salespeople, in particular, often receive sales-commission payments, so unavailable goods may reduce their potential personal income.

It should be steering the stewardship and accountability systems that ensure that the organization is conducting its business in an appropriate, ethical manner.

Finance should also be providing the information, analysis and advice to enable the organizations' service managers to operate effectively.

That means making the connections and understanding the relationships between given inputs—the resources brought to bear—and the outputs and outcomes that they achieve.

For inventory items that one cannot track individually, accountants must choose a method that fits the nature of the sale.

Which method an accountant selects can have a significant effect on net income and book value and, in turn, on taxation.

LIFO accounting is permitted in the United States subject to section 472 of the Internal Revenue Code.

Standard methods continue to emphasize labor efficiency even though that resource now constitutes a (very) small part of cost in most cases.

For example, a policy decision to increase inventory can harm a manufacturing manager's performance evaluation.

In adverse economic times, firms use the same efficiencies to downsize, rightsize, or otherwise reduce their labor force.

Eliyahu M. Goldratt developed the Theory of Constraints in part to address the cost-accounting problems in what he calls the "cost world."

He defines inventory simply as everything the organization owns that it plans to sell, including buildings, machinery, and many other things in addition to the categories listed here.

Throughput accounting recognizes only one class of variable costs: the truly variable costs, like materials and components, which vary directly with the quantity produced Finished goods inventories remain balance-sheet assets, but labor-efficiency ratios no longer evaluate managers and workers.

[citation needed] Stock rotation is the practice of changing the way inventory is displayed on a regular basis.

Where banks may be reluctant to accept traditional collateral, for example in developing countries where land title may be lacking, inventory credit is a potentially important way of overcoming financing constraints.

Obtaining finance against stocks of a wide range of products held in a bonded warehouse is common in much of the world.

[28] A precondition for such credit is that banks must be confident that the stored product will be available if they need to call on the collateral; this implies the existence of a reliable network of certified warehouses.

The possibility of sudden falls in commodity prices means that they are usually reluctant to lend more than about 60% of the value of the inventory at the time of the loan.