Companys approach to Inventory Health
February 12, 2025
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While inventory classification of raw materials for Inventory Management purposes follows ABC Classification, Finished Goods inventory is classified under additional categories based on various attributes including sales volumes/patterns, functional attributes and operational requirements.
Finished Goods at the very basic level is manufactured and stocked separately depending upon the Business Units as well as the Sales Channels.
Global companies normally have plants spread over all continents and manufacture different categories of products. In such cases a particular countries requirement of certain products may be sourced from overseas factories of the company.
Inventory for such imported and bought out items is maintained under separate bucket to be able to identify them easily. Their valuation and costing and profit margins may be different from those of in house manufactured goods.
Further imported Goods would have import duty and tax liabilities, which may be different from that of in house manufactured inventory.
Example: Computers and Desktops are manufactured by Global MNCs like Dell, HP & Lenovo. They have established manufacturing facilities in various countries catering to the local and international markets. Typically they produce few of the SKUS locally and the other products are sourced from overseas facilities. They also buy monitors, keyboard and accessories from OE Suppliers. These are considered bought out items in their inventory l listing.
When a particular SKU is no longer salable due to lack of demand and has become obsolete, it gets classified under obsolete stock and continues to be valued in the books of accounts.
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