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What is inventory?

Inventory, sometimes referred to as stock, is the total number of goods a business holds that are available for sale, or being used to produce items for sale. These units can be classified into three groups across the production timeline:

  • Finished goods

  • Works-in-progress

  • Raw materials

For example, this means that if a T-shirt store carries 10 different types of T-shirts, and has 100 of each type, the store’s finished product inventory is 1,000 individual T-shirts. And if they have 50,000 yards of cotton sitting in their factory, waiting to be made into new apparel, then that number would be listed as a raw material on the inventory report.

Inventory is considered a primary asset for most businesses. This is because the rate of production and sale of these goods is generally a reliable indicator of the financial success of a company.

Why is tracking inventory important?

The goal of tracking inventory is to gather vital information needed to manage your products and your business. Even if your business is a small one, keeping careful track of your inventory can help you effectively manage your operations. You can use business tools like Wix eCommerce to ensure your business stays organized.

Tracking inventory helps you:

  1. Make sure items are in stock. By tracking inventory, you can see which items are about to run out so you can re-order or manufacture more in time. This saves your business from losing out on potential income.

  2. Discover which items are good sellers. By checking inventory numbers, you can easily see which items are popular with customers and make informed business decisions about which products to feature in marketing campaigns.

  3. Keep careful records for accounting purposes. You may be required to report your store’s inventory value to your local tax authority.

  4. Manage storage. Before customers purchase your products, you need to store your stock somewhere. Whether you have a small online business based in your home, or a larger business with warehouse space, tracking inventory can help you decide how to optimally manage storage for your business.

  5. Uncover product theft or loss. Without tracking inventory, it would be difficult to know if products have gone missing somewhere along the chain of production.


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How inventory is tracked

Today, inventory is often tracked automatically, meaning that each time you sell a product, inventory updates automatically. This is especially true for online stores.

Tracking is done by assigning a code, called an SKU (Stock Keeping Unit), to each item for sale. The code is made of a series of numbers, and sometimes letters. Every product model variation is assigned its own unique code.

For example, let’s say your store sells a T-shirt with a cat on it, and it comes in two colors and three sizes. The small, blue cat T-shirt should have its own SKU number, while the medium, blue cat T-shirt will have a different number (and so on).

In your inventory tracking software or spreadsheet, each product is listed by SKU, so you can quickly see how many articles of that item are left in stock.


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Related Term


Related Term

Purchase Order

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