10.9 : Inventory Management

Inventory management is a core aspect of short-term financial planning. It helps businesses balance having enough stock to meet demand and minimizing excess inventory that could strain finances. A well-organized inventory management system tracks stock levels and reorders materials at the right time to ensure availability without overstocking.

Modern inventory management tools often use data analytics to predict customer demand, helping businesses like Amazon and Target maintain optimal stock levels for various products. Techniques like Just-In-Time (JIT) inventory, for instance, allow companies to order stock only when needed, which minimizes storage costs and frees up cash.

Another key metric is the inventory turnover ratio, which shows how frequently a company sells and replaces its inventory over a specific period. A high turnover rate usually indicates strong sales and efficient inventory management, while a low rate may suggest overstocking or low demand.

Maintaining well-managed inventory for short-term financing strengthens a company's position when seeking loans. Lenders view properly managed inventory as valuable collateral, often extending favorable credit terms to businesses with efficient inventory practices. Thus, inventory management supports both operational and financial flexibility.