Subject areaRevenue and sales
Also known asinventorystock on hand
Inventory stock is the goods sitting in storage waiting to be sold or used: raw materials, work in progress and finished products.
Every item in the warehouse was paid for before being sold, so inventory is tied-up capital, money the company has already spent and will only get back through a sale. It follows that inventory growing for no reason slows down Financial Velocity, the speed at which invested money turns into cash, and adds storage, insurance and obsolescence costs (the risk that goods lose value while they sit).
Inventory shows up in the ERP (the management system that records purchasing, production and sales) and often reveals a lack of Organizational Synchrony: purchasing and sales work from different forecasts. When the surplus is already in storage, one lever to clear it is a flash sale, a time-limited sale at a reduced price.
An example
The case below is constructed, because the term does not yet appear in the articles. A manufacturing company learns from its ERP that a component bought in bulk has been sitting in storage for months, while the one customers are ordering is missing: sales and purchasing worked from different forecasts.
Enrico Giubertoni. Licensed under CC BY-NC 4.0: you may quote, translate and adapt this entry with the author’s name and a link, stating any changes. For commercial use, write to info@enricogiubertoni.com
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