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Is Inventory a Current Asset?

by Maxine Harrison on October 12, 2021
 
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As a steward of your organization, you’re charged with keeping abreast of what makes the company tick. The raw materials being processed right now are in your stead and will, at some point, translate into company revenue. You know first-hand that when there’s a cog in the asset wheel, profitability wanes and the supply chain breaks down. It’s why inventory--the goods and raw materials in your company’s possession--must remain top of mind.

Let’s explore how inventory classifies as being a current asset and why it’s important to keep effective inventory management at the forefront of your operations.

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What kind of asset is inventory?

Think of it this way: If, at some point, the raw materials or finished products can be sold, shipped or delivered, and in the end, garner a monetary return, it’s considered a current asset. Inventory fits the bill. As opposed to “stock,” inventory inherently has the potential to generate the funds that keep the company in business. Inventory and the eventual sale thereof pays for short-term debt, employee salaries, vendor services, and other overhead costs. Inventory is a current asset because it provides the organization with liquidity; the capacity to move forward with confidence.

Why is asset management important?

If inventory runs low, labor is short, or something goes awry with an external work order, a disastrous domino effect could manifest before you have a chance to conduct meaningful damage control. Asset management is critical to staving off the potential aftermath of a breakdown in the supply chain and ultimately, lost revenue.

Part of effective asset management is having access to the right tools. Some organizations still rely on antiquated or rudimentary systems; sometimes it’s a spreadsheet or the use of inventory control lists. Other times, the process is a bit more enlightened where workers are using a point-of-sale system. Either way, those older approaches to asset management are basic. They don’t provide the critical functionality that allows you and your team to close the loop, including initiating real-time work-orders, securing labor, making sure repairs are made, and being the conduit that makes certain products get out the door. Unlike these old methods, ManagerPlus© Lightning is an enterprise asset management solution that keeps track of it all; inventory, parts, vendor info, and more.

Specifically, Lightning is a practical solution to increase uptime because all the information you need and relay to others is housed in one location. At a glance via a dashboard, you can quickly gauge where your team is on repairs and maintenance. Use the vendor portal to connect with external vendors. You and your ops team can upload photos to give visual representations of what’s in progress and drill down to review the more granular details.

The software emboldens leaders to make strategic decisions that are steeped in reliable, real-time data. Having insight into inventory statuses, workers, and historical issues plus having the ability to secure work orders and action items improves operations and helps the organization become more efficient. Essentially, this kind of preventive maintenance reduces risk and encourages productivity. With Lightning at your disposal, you can be the change agent your organization needs and leave antiquated systems in your rearview mirror. Asset management is important to recognizing potential issues before they become a financial liability.

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Fixed versus current assets

While current assets reflect short-term revenue projections, fixed assets are purchased to support the organization’s ops. These include machines (for manufacturing goods over the long-term), land, and property. More commonly, fixed assets are called “capital assets.” They’re not intended for sale, but rather, they exist to help the business operate.

Here’s an example: If an organization purchases a truck to deliver goods to its customers over a period of years, it’s considered a fixed asset. If they intend to sell a truck without the intention of using it for delivery purposes, then it would be considered inventory and a current asset.

Other examples of fixed assets include:

  • Computers
  • Office furniture
  • Intellectual property
  • Art
  • Fixtures

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What is the difference between assets and inventory?

Generally, an asset is something owned by an organization that holds value. Assets could be tangible, like equipment or intangible, like a logo or proprietary software that an organization’s computer developers created. Both fixed assets and current assets encourage profitability and keep the business in operation.

Inventory is a type of asset providing the foundation for short-term returns. The materials that set the stage for an end-product and the finished products themselves are considered inventory and will eventually be placed in the market for purchase by a consumer.

Within an organization, there might be different asset categories these products fit into. Some companies house hundreds or even thousands of products that at some point, may need a repair or a replacement. Without robust tools, these action items can be overlooked. It’s why teams rely on ManagerPlus Lightning; it provides project management templates for common asset categories, keeping critical projects organized and top of mind for your ops team. From a high level, you can quickly review the ratio of preventive versus reactive maintenance and adjust priorities as needed.

For newly-hired workers who need to get up to speed on your internal workflow (including asset management), you can write notes and provide detailed instructions, all from a mobile device.

Summary

Inventory is a current asset that needs to be maintained. Doing so requires impeccable organization, planning/forecasting, and efficiency--things that some businesses lack because they’re relying on outdated systems that don’t provide the right insights; they’re devoid of any robust tech that closes the loop on repair, maintenance, and positioning products for market. If inventory management takes a hit, so does the business overall.

As a leader, it’s up to you to leverage tools that encourage effective asset management, boost revenue, and ultimately, keep the business moving forward.

If you’re ready to make a bold, strategic move to improve your asset management, set up a call. Our experts will help you tackle the challenges you’re facing.

Maxine Harrison
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Maxine Harrison

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