The Inventory of a company refers to all the goods, materials, and products that a company has in stock at any given time. It includes raw materials, work-in-progress, and finished goods. Inventory is a significant part of a company's current assets and plays an essential role in sales and production processes.
Delving deeper, inventory is more than just the products on a store's shelves. It's a critical component of a company's supply chain, affecting everything from production to sales. Inventory is classified into three main categories: Raw Materials (unprocessed materials used to produce goods), Work-In-Progress (partially completed goods), and Finished Goods (ready for sale).
Inventory management is crucial to a company’s financial health. Too much inventory can lead to high storage costs and potential wastage, while too little can result in lost sales and customer dissatisfaction. Therefore, companies use inventory management systems and models to maintain an optimal inventory level.
Inventory is recorded as a current asset on a company's balance sheet, and its valuation can be done using different methods like FIFO (First-In-First-Out), LIFO (Last-In-First-Out), and Weighted Average Cost.
For Amazon, inventory includes the wide range of products it stocks in its warehouses ready for delivery, from books to electronics to household goods. Amazon also includes goods that are en route or being processed in its inventory.
Ford's inventory includes raw materials like steel and parts used to manufacture its cars, work-in-progress inventory of cars at various stages of the production process, and finished vehicles ready to be sold to dealerships.
For Coca-Cola, inventory includes raw ingredients like concentrate and sweeteners, work-in-progress inventory of beverages being bottled or canned, and finished products ready to be distributed to retailers.