Inventory has to do with the materials kept on hand, either to make a product or to resell it in most instances. This definition excludes services because obviously they cannot be stored in the way that, say, automobiles and computers can. Though here we describe the importance of inventory management. Why have inventory at all? Although rarely asked, this is a question that entrepreneurs should never overlook.
The answer strongly influences how best to plan and control inventories. Reasons for having inventory include:
Importance of inventory management
- Avoid the loss of customers because a product is not in stock.
- Enable customers to look over a product before buying it.
- Capitalize on discounts on the price of raw materials.
- Make a product in quantities that minimizes costs.
- Keep a plant from cutting back or shutting down.
- Speculate against increases in price and cost.
- Assure customers of prompt delivery.
- Protect against strikes.
Inventory control is important for all types of businesses but it is relatively more important in the case of small businesses because of their limited resources and insignificant market share in the locality. The blockage of capital and inability to deliver goods when asked may seriously affect the prospect of the small business.
It is for this reason, that a small business should care most about managing inventory with all-time vigilance.
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