From an accounting perspective, inventory is considered an asset. At the same time, many businesses have embraced lean approaches, striving to minimize inventory at every stage of their operation. “Inventory only really matters when it’s converted into sales.” Inventory is the product, after all, and how we make money. For most businesses, managing the inventory is also a burdensome activity. It seems that in the management of inventory, we are always left with unsatisfactory choices.
The question is: how do you have enough to satisfy your customers while not having so much that all your working capital is tied up? You can imagine being able to satisfy 100% of your customers 100% of the time with 100% of the offered inventory—you can imagine it, but not even the largest companies can afford it. You can also imagine the alternative—the Henry Ford model of inventory management: you can have it in any color (or size) you’d like, as long as it’s black. It worked for Henry Ford, but you
won’t be able to stay in business very long when your customers have many options available from your competitors.