From the course: Inventory Management Foundations
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View inventory as money
From the course: Inventory Management Foundations
View inventory as money
- In his now famous book, "The Goal," Eli Goldratt defined inventory as all the money that the system has invested in purchasing things which it intends to sell. In short, inventory is an asset, just like money. And just like money, inventory must be properly managed. Inventory appears on your company's balance sheet as a current asset. A current asset can and will be quickly turned into cash. For example, when a customer pays an invoice, that accounts receivable asset immediately becomes cash. For many years, managers believed that the more inventory you have, the better. The focus is on filling orders and satisfying customers. You increase your inventory to ensure that you can deliver products to your customers as soon as you receive an order. Thanks in part to Eli Goldratt, we now understand that less inventory is better. Inventory is money you invested, and you should turn it back into cash as quickly as…
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