Inventory is the key parts in today business. Explain with example?

Inventory management is the process of ensuring that a company always has the products it needs on hand and that it keeps costs as low as possible.

Inventories are company assets that are intended for use in the production of goods or services made forsale, are currently in the production process, or are finished products held forsale in the ordinary course of business. Inventory also includes goods or services that are on consignment (subject to return by a retailer) or in transit.

There are three types ofinventory: raw materials, work-in-progress, and finished goods. Given the significant costs and benefits associated with inventory, companies spend considerable amounts of time calculating what the optimal level of inventory should be at any given time. Because maximizing profits means minimizing inventoryexpenses, several inventory-control models, such as the ABC inventory classification method, the economic order quantity (EOQ) model, and just-in-time management are intended to answer the question of how much to order or produce.

Inventory management also means maintaining effectiveinternal controls overinventory, including safeguarding the inventoryfrom damage or theft, using purchase orders to trackinventory movement, maintaining an inventoryledger, and frequently comparing physical inventorycounts with recorded amounts.

Common inventory accounting methods include "first in, first out" (FIFO), "last in, first out" (LIFO), and lower of cost or market (LCM). Some industries, such as the retail industry, tailor these methods to fit their specific circumstances. Public companies must disclose their inventory accountingmethods in the notesaccompanying their financial statements.

Inventory management makes its biggest mark on theinventory line item of thebalance sheet. That line item doesn't just reflect the cost of the inventory; it also reflects costs directly or indirectly incurred in readying an item for sale, including not only the purchase price of that item but the freight, receiving, unpacking, inspecting, storage, maintenance, insurance, taxes, and other costs associated with it.

Inventory management is a key component of cost of goods sold and thus is a key driver of profit, total assets, and tax liability. Many financial ratios, such asinventory turnover, incorporate inventory values to measure certain aspects of the health of a business. For these reasons, and because changes in commodity and other materials prices affect the value of a company’sinventory, inventory management is important.

Inventory management is also a key part of managing a company's supply chain. Buy too much stuff, and a company can end up paying more for warehousing, insurance, shipping, and other services related to obtaining and maintaining inventory. All of these affect the bottom line. Finding the best way to buy, store and move inventorycan make the difference between profits and losses for many companies.

Because there are several ways to account for inventoryand because some industries require more inventory than others, comparison ofinventory management is generally most meaningful among companies within the same industry using the sameinventory accountingmethods. The definition of a "good" or "bad" inventorymanagement should be made within this context.

The key decision in manufacturing, retail and some service industry businesses is how much inventory to keep on hand. Inventory is usually a business’s largest asset. The instant inventory levels are established, they become an important input to the budgeting system. Inventory decisions involve a delicate balance between three classes of costs: ordering costs, holding costs, and shortage costs.

Before we venture further, what does inventory mean? According to the Merriam- Webster Dictionary, Inventory is defined as,“ the quantity of goods or materials on hand”

Inventory is also known as “an itemized list of goods or valuables, with their estimated worth; specifically, the annual account of stock taken in any business”

True, products are seasonal, and inventory must be prepared, and stocked on time.

If you miss your season you loose a huge volume of potential sales.

Any organization should practice effective inventory management to ensure that costs are monitored and controlled, supply levels are calculated, and the right supplies are at the right place at the right time.

it is important but FYI Toyota Factory didn't have store