Current events paper - Essay Example

Inventory is one of the most important assets a company owns. It can be defined as a stock or store of goods. The inventory of a firm is ified as a current asset in the balance sheet of the company. In the manufacturing sector the inventory balance of a firm is composed of raw materials; work in process inventory, and finished goods. The balance of inventory of a company represents 30% of the current assets of a business. Due to the importance of inventory companies must monitor this account closely.

Techniques such as just-in-time inventory are utilized by companies in order to minimize the amount of inventory on hand. Managing adequate levels of inventory is important to ensure that the firm’s inventory balance does not hurt the cash position of a firm. In the retailing industry the merchandise in the shelves of the stores represent the inventory of the company. A way to reduce the cost of acquiring merchandise in the merchandising sector is by purchasing in bulk. Companies that purchase in bulk are able to achieve economies of scale.

A way to reduce the risk of losing inventory due to fires, natural disasters, or theft is by purchasing insurance for the inventory of a company. The article Your Inventory is Your Cash: Handle With Care (4 Cost-Cutting Tips) discusses the effect and importance of inventory for companies in the industry. Smart use of inventory is an important factor that managers must consider. A lot of space, sales opportunities and cash are tied up on inventory. Storing adequate levels of inventory is important to achieve sales growth.

“Smart use of inventory is vital for them and also for you, if you keep and store any kind of goods or supplies in the operation of your business” (Williams). Four strategies that must be used to manage inventory are frugality, cost tracking, inventory tracking, and sales monitoring. Proper management of inventory can increase the profitability and cash flow of a company. It is important to minimize the amount of slow selling products on inventory. Minimizing inventory saves warehouse space, prevents products from going bad, and it saves money.

Tracking costs allows companies to establish appropriate price levels for its customers. Monitoring costs gives managers the ability to identify areas for improvement. Tracking inventory can help a company determine the proper reorder point of inventory items. Sales monitoring gives the manager the ability to determine the adequate sales level when demand changes. Inventory management has become a critical success factor in the 21st century. The discussion in the article demonstrated different tactics that companies must utilize to adequately manage their inventories.

I thought that the four strategies mentioned by the author of the article were right on target. I agree with the author of the article that inventory can help a company increase its profitability and cash flow. If a company invests too much on inventory and sales slow down the firm might face solvency issues. A technological advancement that can be used by companies to track inventory is radio frequency identification tags (RFID). Work Cited PageWilliams, D. 13 October 2012. “Your Inventory Is Your Cash: Handle with Care.

” Forbes. 7 March 2013.