Inventory management can make or break a business. Inventory is often the largest item in the current assets category on a balance sheet. Issues with inventory can contribute to business losses, even failures. Proper management of the supply chain, on the other hand, can allow a business to thrive. Good inventory management strikes a balance between the amount of inventory coming in and going out. It controls the timing and costs of non-capitalized assets and stock items, allowing a business to reach optimal profitability.
Inventory management in businesses is all about balance. When a business invests in more inventory than it can sell (overstock), it creates a deficit in the budget. Not enough inventory, and you compromise customer service. Often, the business has to deduct the costs of the excess inventory from profits. It cannot sell the inventory, and it cannot get a refund from the manufacturer. The goods will sit in storage or be disposed of and counted off as losses.