INVENTORY

MANAGEMENT
NAME OF THE RESPECTIVE ROLL
MEMBERS NUMBER

KHUSHI MITTAL 275

HEMANI NARANG 345

ARADHIYA SAH 511

SAKSHI SHARMA 644

VISHAKHA 693
SEQUENCE OF THE RESPECTIVE TOPICS RESPECTIVE PERSON
PRESENTATION EXPLAINING THE TOPIC

INTRODUCTION AND TYPE OF VISHAKHA -693

1 INVENTORY

EXPLANATION OF INVENTORY SAKSHI SHARMA-644

2 MANAGEMENT

3
TRADING FIRM KHUSHI MITTAL-275

MANUFACTURING FIRM ARADHIYA SAH-511

4
DIFFERENCE BETWEEN TRADING HEMANI NARANG-345
5 AND MANUFACTURING FIRM
 INVENTORY
Inventories are assets :-
• held for sale in the ordinary
course of business,
• in various production stages,
• in the form of supplies to be
consumed in the production
process or in the rendering of
service.
 TYPES OF INVENTORIES
Inventories are classified as finished
goods, work-in-progress and raw
materials.

1. Finished goods –
• Completely manufactured products
ready to sell.
• Firms need to maintain a sufficient
finished goods inventory in order to
not lose sales.
• Purpose- Tu uncouple production and
sales function so that sales can be
made directly out of inventory.
TYPES OF INVENTORIES
2. Work-in-progress (WIP) –
• Partially produced goods.
• Value of WIP includes –
Raw material costs, direct
wages, expenses already
incurred and overheads, if
any.
• Purpose – To uncouple
various production
processes so that one
operation will not affect
the other operations.
 TYPES OF INVENTORIES
3. Raw Materials –
• Materials primarily used in the manufacturing of goods.
• Purpose – to uncouple the production function from
purchasing function so that delay in procurement of raw
materials do not cause production delays.
While finished goods are final products of one firm, they may be a
raw material to another. One classic example is transaction
between following two firms –
The chip is the finished product to the manufacturer, but it
becomes a component when sold to the computer manufacturer.
 Meaning

INVENTORY Inventory management is

the process of ordering,
MANAGEMENT handling, storing and using
a company‘s non capitalised
assets – it’s inventory.
 FEATURE
S
Centralised inventory management

Tagging and barcoding

Reporting of the business activities

Forecasting of the inventory

Alerts regarding inventory details

 OBJECTIVES
• Transaction objective: According to this
motive an enterprise maintains inventories to
avoid bottleneck in its production.
• Precautionary motive: A prudent business
would surely like to have some cushion to
guards against the risk of such unpredictable
changes.
• Speculative Motive: An enterprise may also
hold inventories to take the advantage of price
fluctuations.
 Inventory management should strike a
balance between too much inventory and
too little inventory. The efficient
CONCLUSI management and effective control of
inventory help in achieving better
ON operational results and reducing
investment in working capital. It has a
significant influence on the profitability
of a concern.
TRADING FIRM
In general, the definition of a trading company is a form of
company engaged in the trading of goods in which its main
activity is buying, storing, and reselling merchandise for
profit without adding value to these goods.

Trading companies are businesses working with different

kinds of products which are sold for consumer, business, or
government purposes. Trading companies buy a specialized
range of products, maintain a stock or a shop, and deliver
products to customers.
FEATURES
A company’s form can be recognized by its characteristics. The
characteristics of companies engaged in trade are as follows:
• Its main activity is buying, storing, and reselling merchandise.
• The company does not carry out a production process for
goods sold.
• The profits derived from sales are less the purchase costs and
operational costs.
• The form of business carried out is buying and reselling
merchandise without any processing.
• Accounting activities at this company use an inventory
account, where the calculation of cost of goods sold and
income statement uses the single step and multiple step
forms.
ACTIVITIES OF TRADING
FIRM
• Identification of suppliers in different countries with
capacity to supply large
• volumes of generic products at competitive prices.
• Negotiating the terms of sale and delivery of products.
• Financing and assurance of payment to the supplier-
exporter.
• Managing logistics and transport.
• Managing customs and barriers of international trade.
• Distribution and sale of the products through its retail
network
REASONS TO MAINTAIN INVENTORIES IN
TRADING FIRM

In case of a trading firm, there may be several reasons why it will

maintain inventory.
• If the firm has some stock of goods, then the sales activity can be undertaken even if
the procurement has stopped due to one reason or the other.
• Otherwise, if stock is not there, there is a likelihood that the sales will stop as soon as
there is an interruption in procurement.
• Moreover, it is not always possible to procure the goods whenever there is a sales
opportunity, as there is always a time gap required between the purchase and sale Of
goods.
• Thus, a trading concern should have some stock of finished goods in order to undertake
sales activities independent of the procurement schedule.
MANUFACTURING FIRM
• A manufacturing firm are the ones that uses raw
materials, parts, and components to assemble
finished goods. Manufacturing firm often employ
machines, robots, computers, and humans to
produce the merchandise and typically use an
assembly line, which enables a product to be put
together step by step, moving from one
workstation to the next.
• Manufacturing firm can choose to sell their
products directly to consumers, to other
manufacturers, to distributors or to wholesalers .
 CHARACTERISTICS
OF MANUFACTURING
FIRM

• Manufacturing is essentially risky, because it

presumes there is enough market for a
product to make it on a large scale.
Managing that risk is the most important part
of manufacturing. 
• To manage that risk, manufacturing needs:
• Productivity
• Quality Control
• Good Design
• Cost Effectiveness
ACTIVITIES IN MANUFACTURING ORGANIZATIONS

Product
Unit level Batch level Facility level
level
activities activities activities
activities
REASONS TO MAINTAIN INVENTORIES
IN MANUFACTURING FIRM
Keeping your inventory well-stocked is a crucial aspect of keeping business
operations running smoothly
1. Keeping inventory on hand allows a company to meet any expected increases in
demand. It also ensures that the appropriate number of products are available,
should there be an unexpected increase in demand.
2. Keeping a strong inventory supply allows a company to benefit from periodic
price reductions when making bulk purchases of needed raw materials.
3. Uninterrupted Production Schedule
4. Independent Sales Activity
Difference between
trading firm and manufacturing firm
 Trading firm
• Goods are purchased and are sold
without further processing.
• The major business process of
trading concerns are
procurements and sales.
• The time required from
procurement to sales will be
relatively less for trading firm.
Manufacturing firm
• Raw materials are purchased
and converted into a new final
product for sales.
• The major business process of
manufacturing concerns are
procurements, production and
sales.
• The time required from
procurement to sales will be
relatively more for firm since the
manufacture requires conversion
time for processing the goods
 Trading firm
• The cost of goods sold for the trader
is:
Opening trading goods + purchases of
trading goods – closing trading goods.
• Examples of trading include mobile
phone trading, books trading and
many more.
Manufacturing firm
• The cost of goods sold for the
manufacturer is:
Opening manufacturing goods +
purchases of manufacturing goods –
closing manufacturing goods.
• Examples of manufacturing
include automotive companies,
bakeries, shoemakers and tailors
 SUMMARY
Raw materials, work in progress, and finished commodities are
all included in inventory. Inventory management refers to the
control of these components' levels.

Inventory comes with both expenses and benefits. Storage

costs, financing costs, ordering costs, and stock-out costs are all
included in inventory costs. In terms of standalone production
and sales activities, inventory benefits are accessible.

Inventory management necessitates a trade-off between

inventory costs and benefits. A finance manager must identify
the products that are more significant than others and (ii) the
size of each order for different items in a systematic approach
to inventory management.