One of the key lessons we learned from Dunder Mifflin is that your warehouse management is very important!

What is inventory management?

Inventory management is the function of understanding the stock mix of a company and the different demands on that stock.

What type of companies hold inventory?

Manufacturing & merchandising companies: retailers, restaurants, freight and logistics companies, etc. Any company that needs to stock products and goods. Manufacturing companies sell goods to earn revenue while merchandises companies resell goods to earn revenue. (sell vs. resell)

Who in the company is in charge of it?

The purchasing department is responsible for ensuring that the organization maintains the correct level of inventory to build and sell products.

What is the relationship between inventory (Balance Sheet) & COGS (P&L)?

Companies sell inventories to earn a profit. Before inventory is sold, it acts as an asset of the company. When it is sold, the cost converts into an expense, called the cost of goods sold.

Why is inventory an asset? 

The intention is to make money out of it within the same year. Hence why it is under “current asset” because it is not supposed to stay long. The intention is to sell it and make money quickly.

Most common types of inventory:

1- Raw materials (Inventory that was purchased to produce goods); Manufacturing companies only

2- Work-in-Progress (Inventory that was in the process as now); Manufacturing companies only

3- Finished goods (inventory that is available to be sold). Manufacturing & merchandising companies