Inventory Management

While good inventory management probably won’t make a company, bad inventory management can certainly break a company. Because inventory contributes to working capital and operating expenses, the impact of good or bad inventory management shows up on your company’s balance sheet and income statement. If you’re thinking that since inventory is an asset, it must be good to have more of it; you’re only half right. Inventory is indeed a current asset that shows up on the balance sheet; but if the inventory isn’t driving sales in the right proportion, then excess inventory can increase operating expenses and reduce your company’s ability to lower liabilities. Thus, good inventory management increases your company’s shareholder value by contributing favorably to the balance of assets and liabilities and to the reduction of operating expenses.