Understanding Inventory Position and Inventory on Hand: What's the Difference?

What is the difference between inventory position and inventory on hand?

Introduction:

When it comes to managing inventory, two terms often come up: inventory position and inventory on hand. While they both relate to a company's stock, they have distinct meanings and implications. In this blog post, we will delve into the difference between inventory position and inventory on hand, providing you with a clearer understanding of these concepts. Let's explore!

Inventory on Hand: Meeting Customer Demand

Inventory on hand refers to the stock available within a company's warehouse or storage facility that is ready to be used to fulfill customer orders. It represents the tangible goods a company has in its possession, waiting to be shipped or consumed. Inventory on hand serves as an immediate resource to meet customer demand promptly.

Inventory Position: A Holistic View of Stock Situation

On the other hand, inventory position offers a more comprehensive perspective on a company's overall stock situation. It considers not only the inventory on hand but also two additional factors: inventory on order and backorders.

1. Inventory on Order: Awaiting Stock Arrival Inventory on order comprises goods that have been ordered from suppliers but have not yet been received by the company. This inventory is either in production or in transit, awaiting delivery. It represents stock that would have been on hand if there were no delays caused by production or transportation lead times.

2. Backorders: Unfulfilled Customer Orders Backorders are customer orders that have been placed but have not yet been fulfilled. These are orders that the company has committed to delivering but currently lacks the inventory to fulfill. Backorders represent unmet customer demand and require attention to ensure timely fulfillment.

Understanding the Equation: Inventory Position Calculation

To calculate the inventory position, you can use the following equation:

Inventory Position = Inventory on Hand + Inventory on Order - Back Orders

By summing up the inventory on hand, adding the inventory on order, and subtracting the backorders, you arrive at the inventory position. This value provides a more comprehensive view of the company's stock status, accounting for goods currently available, goods in transit, and unfulfilled customer orders.

Conclusion:

Inventory position and inventory on hand may sound similar, but they represent different aspects of a company's stock management. Inventory on hand refers specifically to the stock physically present in a company's warehouse, ready to be used. On the other hand, inventory position takes a broader view, encompassing the inventory on order and backorders. By considering all these factors together, businesses can gain a more accurate understanding of their overall stock situation. This knowledge is crucial for effective inventory management, ensuring prompt customer service and efficient supply chain operations.