Inventory is Inventory accounting. Enterprise stocks

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Stock is a form of material flow existence. On the way from the source of occurrence to the final consumer, it can accumulate in any area. That is why it is customary to distinguish between stocks of materials, raw materials, finished products and other things.

Basic definition

It turns out that inventories are materials, raw materials, components, finished products, and other valuables that await personal or industrial consumption. The presence of such a benefit is associated with significant costs and seriously affects the results of the enterprise. If the desired product is not available, it can cause a decrease in sales, as well as consumer dissatisfaction. Due to the lack of raw materials for production, a disruption or change in the production program may occur, and this often results in a shortage of finished products and additional costs.

Nuances

Bad and thatif there is excess stock, this also becomes a source of problems. Due to the excess of certain volumes, it becomes necessary to use additional storage facilities, working capital, and also involves the cost of taxes and insurance. Products stored in a warehouse may well become obsolete, losing some of their value. For many companies, inventory is a significant part of assets. At the same time, it is a source of costs. If you reduce inventory by a few percent, you can significantly increase profits.

Features

It turns out that the maintenance of stocks is a certain risk. If own funds are used, then capital deadening is quite possible, and when borrowing funds, we can talk about an increase in the interest expenses of the enterprise. Another risk is associated with the possibility of theft or products falling into disrepair. If we add to this a considerable amount of investment in stocks, then the complex of these factors for any enterprise will be a significant part of the risk.

The degree and nature of the risk depends on how the enterprise is located in the distribution channel. For example, in the wholesale trade, due to the large assortment of goods, there may be a sharp increase in stocks, as well as the costs of their maintenance, which are not commensurate with the income from trade. In retail, maintaining inventory is associated with significant costs associated with the high cost of retail space.

Dependency

Stocks of an enterprise are an important part, which cannot be dispensed with. This is due to the functions that are assigned to them.

First of all, stocks provide geographic specialization for individual economic units. Since production requires energy, raw materials, water and labor, it is very often located remotely from the main markets. The manufacturing facilities required to produce these components and assemblies are usually located as close as possible to the sources of material resources in order to reduce transport costs. In this way, it is possible to ensure the cost-effectiveness of production.

However, geographic isolation requires the transportation of components to the main production line. In addition, this factor creates the need for stocks required for the production of products. Goods created in different places are collected in warehouses for the purpose of further acquisition, as well as shipment to consumers. And here, proper inventory management is important, which will allow everything to be optimized.

Second function

Such a moment as balancing supply and demand is associated with the existence of a time gap between consumer and production. The most obvious example is the seasonal production of products that are consumed throughout the year, such as juices, canned food, etc. An opposite example would be antifreeze, which is produced year-round and consumed exclusively in winter. Accounting for inventories allows you to make sure that the cost-effectiveness of production in conditions of unstable demand is ensured. complexThe problem of planning is to overcome the time gap between production and consumption. When it comes to seasonality of demand, then manufacturers, wholesalers and retailers need to create inventory before the peak of seasonal demand comes. Due to the presence of accumulation of stocks, the strong dependence of production and consumption on seasonal factors can be eliminated.

Another feature

Balancing involves investing in the formation of savings, which will be used in full for the season. Inventory management in this case is fraught with such a problem as determining the required volume to ensure maximum sales with minimal risk of stock carry over to the next season.

Another important point is protection from uncertainty. This function is transferred to insurance or buffer stocks, and it consists in smoothing out fluctuations in supply or demand. Planning requires in this case the determination of the required amount of insurance savings. The need for them is associated with the uncertainty of future supplies and sales to replenish the resource base.

Safety stock is a way to protect against two types of uncertainty. The first assumes that demand within one functional cycle suddenly turned out to be greater than expected. And the second type depends on the fluctuations of the functional cycle itself. An example of uncertainty in demand is the following: the consumer ordered more or lessproduct than planned. There is also a second type of uncertainty, which arises from delays in receiving orders or processing them, or due to problems in the transportation of products.

Additional moment

Another function of inventories is the consolidation of resources, which is realized through the accumulation of inventories of work in progress at the boundary of the stages of the production process, which allows to ensure the maximum efficiency of the production process at a single enterprise. Due to the presence of stocks accumulated in advance, the manufacturer has the opportunity to send large quantities of goods to customers at minimal rates.

Thanks to the consolidation of resources, it is possible to sell accumulated or manufactured products in the required range. It turns out that this function is entrusted with insurance of a business enterprise against uncertainty.

Conclusions

The functions of stocks are predetermining for the amount of investment in them that is required to fulfill the plans developed by the enterprise. Any given production and distribution strategy will only reduce volume to a level that will fulfill all four inventory functions. If there are accumulations above this minimum level, then they are considered to be excessive. That is why inventory accounting is so important at all stages of the production cycle of an enterprise in any industry. Only in this case it is possible to ensure the optimal ratio between the receipts of resources andaccumulation of finished products.