INTRODUCTION

Inventory refers to the stock of resources that possess economic value, held by an organization at any
point of time. These resource stocks can be manpower, machines, capital goods or materials at various stages.
Inventory management is primarily about specifying the size and placement of stocked goods. Inventory
management is required at different locations within a facility or within multiple locations of a supply network
to protect the regular and planned course of production against the random disturbance of running out of
materials or goods.
The scope of inventory management also concerns the fine lines between replenishment lead time,
carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility,
future inventory price forecasting, physical inventory, available physical space for inventory, quality
management, replenishment, returns and defective goods and demand forecasting. Balancing these competing
requirements leads to optimal inventory levels, which is an on-going process as the business needs shift and
react to the wider environment.

DEFINITION

1. International Accounting Standard Committee (I.A.S.C) defines inventory as “Tangible

property (i) held for sale in the ordinary course of business (ii) in the process of production
for such sale or (iii) to be consumed in the process of production of goods or services for
sale”.

2. According to Accounting Standard 2, “inventories generally constitute the second longest

item after Fixed Assets, particularly of manufacturing organizations. The valuation and
presenting of inventories therefore have a significant effect in determining and presenting
the financial position and performance of industrial and commercial undertaking”.
I. MATERIAL INVENTORIES :-
A raw material or feedstock is something that is acted upon or used by or by human
labor or industry, for use as the basis to create some product or structure. Often the
term is used to denote material that came from nature and is in an unprocessed or
minimally processed state. Latex, iron ore, logs, and crude oil, would be examples. The
use of raw material by other species other than the human includes twigs and found
objects as used by birds to make nests.

II. WORK IN PROCESS INVENTORIES:-

Work in process or in-process inventory includes the set at large of unfinished items for
products in a production process. These items are not yet completed but either just being
fabricated or waiting in a queue for further processing or in a buffer storage. The term is
used in production and supply chain management.
II. SPARE PARTS INVENTORIES:-
Maintenance, repair and operating supplies which are consumed during the production
process and generally do not form part of the product itself are referred to as spare part
inventories.

IV. FINISHED INVENTORIES:-

Finished goods are goods that have completed the manufacturing process and ready for
sale or distributed to the end user. In manufacturing unit they are the final output of the
production process. They may also be functionally classified as
1. Movement inventories
2. Lot size inventories
3. Anticipation inventories
4. Fluctuation inventories