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Most businesses carry some inventory. In this lesson, you'll learn about what inventory is, some related concepts and be provided examples along the way. A short quiz follows the lesson.
Definition of Inventory
Inventory is a quantity of goods owned and stored by a business that is intended either for resale or as raw materials and components used in producing goods that the business sells. For example, motherboards warehoused at a computer company to be used in the assembling of its computer systems are inventory. The products displayed for sale and stored in the backrooms of a department store are inventory as well.
Inventory Control System
An inventory control system is a process a business uses to manage inventory. There are several different types of inventory control systems. Let's look at some of the more common systems.
Continuous review system: Under a continuous review system, inventory is continuously monitored. When the inventory of a particular good or product reaches a predetermined level, an order for a predetermined quantity of additional inventory will be placed. For example, a retail store may order six more coffee machines to sell when it's down to only three in inventory. Other names used for continuous review systems include event-triggered systems, fixed order size systems (FOSS) or economic order quantity systems (EOQ).
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Periodic review system: Under a periodic review system, you will check inventory levels at fixed intervals. For example, you may check your inventory of rolled steel on a weekly basis. These periodic review systems are also referred to as time-triggered systems, fixed order interval systems (FOIS) or economic order interval systems (EOI).
Just-in-time inventory control: This system involves the idea that products should be produced just in time for delivery, and raw materials should be ordered and delivered just in time to be used for production. Under this system, inventory never sits around and a minimum amount of money is tied up in inventory.
Inventory is either the finished goods stored and offered for sale by a business or the raw materials used by a company to produce finished products. An inventory control system is a process businesses use to manage inventory. Three general types of inventory control systems include continuous review systems, periodic review systems, and just-in-time inventory control.
Once you've finished this lesson, you should have the ability to:
Define inventory and inventory control system
Describe three general types of inventory control systems
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