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Investments

duction costs. In other words, through a complex analysis, items on hand—is a routine that should be performed a
management attempts to determine the minimum number of times a year. At the very least, inventories
amount of product needed to do the job and still keep the should always be checked each year just before the end of
cost of inventory as low as possible. This analysis consid- the fiscal year and compared against “book” or quantities
ers the amount of time needed to generate an order; to listed as on hand in the computer or manual ledger.
process, manufacture, organize, and ship each product; to Adjustments can then be made to correct any inaccura-
receive, inventory, store, and consume each product; and cies. Taking inventory more than once a year, and thus
to process the paperwork upon receipt through the final looking at stocks over shorter periods of time, often results
payment process. This is a more independent process than in discovering accounting or processing errors. It also
just-in-time inventory; by allowing for a variety of suppli- serves as a notice to employees that management is watch-
ers to participate, it ensures competitiveness. Many com- ing the inventory closely, often deterring pilferage.
panies today employ a mixture of both processes in order Alarm systems and closed-circuit television are just a
to maintain independence yet still have a close relation- few of the ways inventories can be monitored. Making
ship with suppliers. Retailers, for example, work closely sure that everyone allowed into inventory management
with suppliers to maintain the lowest possible inventories systems has and uses his or her own password is critical to
but still have enough products to satisfy customer effective inventory control. By having redundant systems,
demand. Often, companies have access to information management can also compare the two to make sure there
about each other’s inventory levels, allowing management is a balance. If they go too far out of balance, management
to further analyze inventories to ensure that each is carry- is alerted.
ing the correct amount of stock to satisfy market needs
and maintain minimum levels.
IN THE END
Maintaining a clean, orderly, properly lighted, and secure
THE INVENTORY PROCESS warehouse or stockroom is the basic key to maintaining
Inventory is generally ordered by computer, through a inventory control. Adding computer technology to aid in
modem, directly from a supplier or manufacturer. The management and administration creates a system that is
persons ordering the product have an inventory sales or current and competitive. Properly training employees in
usage history, which enables them to properly forecast modern techniques and standards results in a system that
short-term needs and also to know which products are not will be effective and profitable.
being sold or consumed. The computer helps manage-
SEE ALSO Costs
ment with control by tying in with the sales or manufac-
turing department. Whenever a sale is made or units of a
product are consumed in the manufacturing process, the BIBLIOGRAPHY
product is deleted from inventory and made part of a his- Burt, John (1992, February). “Controlling Inventory in Process
tory file that can be reviewed manually or automatically, Inventories: Integration is the Key.” Production & Inventory
Management, 12, 25, 29.
depending on how management wishes to organize that
department. The supplier and the buyer often have a close Christensen, David L. (1997, October). “Inventory Reviews—
Inventory Control.” Internal Auditor, 54, 50-53.
working relationship; the buyer will keep the supplier
informed about product changes and developments in the Malburg, Christopher R. (1994). Controller’s and Treasurer’s Desk
industry in order to maintain proper stock levels, and the Reference. New York: McGraw-Hill.
supplier will often dedicate equipment and personnel to Thomas, Michael F., and Mackey, James T. (1994, April). “Activ-
ity-Based Cost Variances for Just-in-Times.” Management
assist the buyer.
Accounting, 75, 49-54.
Even though small companies may work closely with Wren, Daniel A. (1999, September). “Just-in-Time Inventory.”
larger suppliers, it is still very important that these small Knowledge Management Magazine.
companies manage their inventory properly. Goods need
to be stored in a suitable warehouse that meets the needs
of the products. Some products require refrigeration, for Mark Lefebvre
example, while others require a warm and dry environ-
ment. Space is usually a critical factor in this ever-
shrinking world since it is important to have enough space
to meet the needs of customers and keep the warehouse INVESTMENTS
from becoming overcrowded. Inventory needs to be mon- There was a time when many individuals thought that
itored to prevent theft and inaccuracies. Taking physical investing was for the rich and that very few people could
inventory—physically checking each item against a list of afford to take on the risk that investments appeared to

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 437