Inventory is the total amount of goods and/or materials contained in a store or factory at any given time. Store owners need to know the precise number of items on their shelves and storage areas in order to place orders or control losses. Factory managers need to know how many units of their products are available for customer orders. Restaurants need to order more food based on their current supplies and menu needs. All of these business rely on an inventory count to provide answers.
The word ‘inventory’ can refer to both the total amount of goods and the act of counting them. Many companies take an inventory of their supplies on a regular basis in order to avoid running out of popular items. Others take an inventory to ensure the number of items ordered matches the actual number of items counted physically. Shortages or overages after an inventory can indicate a problem with theft (called ‘shrinkage’ in retail circles) or inaccurate accounting practices.
Restaurants and other retail businesses which take frequent inventories may use a ‘par’ system based on the results. The inventory itself may reveal 10 apples, 12 oranges and 8 bananas on the produce shelf, for example. The preferred number of each item is listed on a ‘par sheet’, a master list of all the items in the restaurant. If the par sheet calls for 20 apples, 15 oranges and 10 bananas, then the manager knows to place an order for 10 apples, 3 oranges and 2 bananas to reach the par number. This same principle holds true for any other retail business with a number of different product lines.
Companies also take an inventory every quarter in order to generate numbers for financial reports and tax records. Ideally, most companies want to have just enough inventory to meet current orders. Having too many products languishing in a warehouse can make a company look less appealing to investors and potential customers. Quite often a company will offer significant discounts if the inventory numbers are high and sales are low. This is commonly seen in new car dealerships as the manufacturers release the next year’s models before the current vehicles on the lot have been sold. Furniture companies may also offer ‘inventory reduction sales’ in order to clear out their showrooms for newer merchandise.