Why is inventory important for a business?


Quick Answer

Inventory, or specifically inventory management, is important for a business to ensure that the business is able to maximize potential sales and market share. Inventory plays a key role in business strategy as it represents a portion of the business's assets and one of its primary sources of revenue.

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Full Answer

It is important for a business to maintain correct levels of inventory. A business that possesses too much inventory for extended periods of time runs the risk of incurring spoilage costs. Unsold stock also runs the risk of obsolescence and generally cost more money to store over time. Having too little inventory is also a risky business condition as it creates a risk where potential market share and sales are lost.

A proper inventory management system is important for a business as it can help it minimize costs while satisfying customer demand. A good inventory management strategy also involves negotiating the lowest possible costs with suppliers.

Inventory is important to a business's turnover as having a good turnover ratio is usually an indicator of high customer demand. Having inventory sell at a quick rate also allows businesses to quickly restock with either popular items or newer merchandise to satisfy a current trend. Low inventory turnover ratios generally lead to higher waste and management costs.

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