The term inventory can be a noun or a verb. As a noun, it refers to the detailed list of all items in stock. It also sometimes refers to the actual stock on hand. As a verb it means to make or add to the detailed list of merchandise and/or supplies on hand.

The process of inventory is important in any business because it ensures efficient operations. If the amount of merchandise is not properly inventoried the supply may fall short of the demand, resulting in dissatisfied customers after they find out that they cannot buy the product they were expecting to be available. This might even lead to a loyal customer turning to a competitor if they need the product immediately.

Overstocking can also become an issue if merchandise and supplies are not inventoried properly. Though overstocking won’t lead to unserviced customers, it may lead to waste, especially if the merchandise is perishable. For example, a restaurant that overstocks in vegetables will end up throwing the excess out since they wilt fast. If the vegetables are kept and used even though they are not fresh, with the intent of saving money, the food quality is then sacrificed which will lead to a decreased customer satisfaction.

Keeping the inventory up-to-date can be time consuming, depending on the size and nature of the business. This is why it is useful to automate inventory when possible. However, doing physical inventory regularly is still necessary in most instances even with an automated system.