Study on Inventory Control and its Impact on Profitability

Study on Inventory Control and its Impact on Profitability



Abstract

Inventory management is critical in day-to-day business operations in order to ensure a steady supply of products at the right moment. Inventory is an essential decision variable at all phases of product production, distribution, and sales, as well as a significant part of many companies' existing assets. Inventory levels that are too high or too low reduce a company's profitability. Consequently, whether a production or merchandising organisation, the objective should always be the same: to guarantee that inventory is ready while remaining at a low level. Inventory management is a finance and production functional area that deals with the efficient and effective utilisation of raw materials and spare parts used in the manufacture of finished products in a manufacturing company. A company that ignores inventory management risks compromising its long-term profitability and may eventually collapse. The decrease of "excess" inventory has a positive effect on a company's profitability.

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Introduction

Inventory is a critical asset for many businesses since it is often a large asset on financial statements and offers a source of income in the near future via sales of products. “Inventory refers to the stockpile of goods that a company would sell in the future in the regular course of business operations, as well as the components that make up the product,” to put it another way. Every business, no matter how large or little, must maintain inventory in the system. In accounting, inventory refers to just the stock of completed products. It may contain raw materials, work in progress, and stores, among other things, in a manufacturing company. Inventory management is essential since a significant portion of a company's money is invested in it. Every business must guarantee that inventory levels are kept within acceptable limits.

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Conclusion

The entire research demonstrates how inventory management is important not only in the financial statement but also in the organization's operational operations. So, in order for a firm to run well, the inventory should be kept to a minimum, but the company should neither be overstocked or understocked. The business may choose the "Economic Order Quantity" for optimal procurement, and it can keep various stock levels for its mechanisms/components in order to prevent inventory-out situations and assist in diverse production flows, according to the findings of the research. This would lower the cost while increasing the profit.

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