Inventory Management vs. Asset Management

What is the difference between assets and inventory? In a nutshell, fixed assets are what an organization owns, and inventory is what an organization sells. They are both integral and valuable assets to your organization. Failing to effectively manage fixed and inventory assets will negatively affect your organization’s financial health. Here is a breakdown of what asset and inventory management entail and how they compare.

Differences Between Inventory Management and Asset Management

What is Inventory Management?

If your organization has inventory, it is undoubtedly one of your most important assets. The value of inventory assets is always shown on a company’s balance sheet as an asset. Inventory assets can include finished goods ready for sale, goods that are in the process of production, goods that will be consumed in the process of production of resale goods, and raw materials.

Inventory provides an organization with the materials that are necessary to its continuous operation. Inventory is essential for an organization to meet the demands of its customers and clients. Not having an accurate accounting of your inventory can affect your business operations and finances. For example, a shortage of inventory can cause you to lose a sale. Having too much inventory results in overstock, which can lead to revenue loss or overspending. If you are selling your business or plan to sell your business, an inaccurate accounting of inventory can affect your sale price.

How Do You Manage Inventory?

To effectively manage inventory, an organization needs to know when stock is running low, when to reorder, and which store or warehouse location needs the stock. The goal is to have just the right amount of inventory needed at the right place and the right time. Does this sound like a difficult thing to achieve? With effective inventory management, it’s not.

Put simply, inventory management is a systematic approach of storing, ordering, and using inventory. It might encompass just the finished products, or also include the raw materials used to build products. An effective inventory management system uses some type of data analytics to allow an organization to accurately and quickly analyze their inventory needs. An inventory management system is essential if your organization wants to cut down on unnecessary expenses and have an accurate picture of your economic situation at the end of an accounting period.

When managing inventory and tracking inventory assets, your system should allow you to:

• Know the exact types of inventory in your possession and where they are located.
• Easily audit and track inventory.
• Anticipate when inventory stock is running low.
• Determine the optimal time to reorder.
• Know which store or warehouse location needs inventory or has overstock.

An effective inventory management system will also be able to track data that can be utilized to analyze your inventory needs, such as how certain types of inventory have been used historically. This type of information can help an organization with purchasing decisions or determining sales strategy.

What is Asset Management?

While not every organization has inventory, every single organization has fixed or tangible assets. Just like inventory, fixed assets are also included on an organization’s balance sheet. However, unlike inventory, fixed assets are generally meant to stay with the organization for a prolonged period and are not easily sold. Consequently, they are critical to business operations and the long-term financial health of the organization.

Fixed assets, such as property, plant and equipment (PP&E), are the physical assets that an organization owns and make up the largest segment of an organization’s assets. Examples of PP&E include: machinery, computers, vehicles, buildings, and land. An organization’s physical and infrastructure assets such as tools, machines, IT and non-IT equipment are integral to its effective operation and need to be managed and tracked.

The amount of assets an organization owns largely depends on its line of business. For example, a farm equipment manufacturer or a hospital likely require a large fixed asset investment. On the other hand, a small service company may not require that many fixed assets to operate.

How Do You Manage Assets?

To effectively manage fixed assets, an organization needs to track things like how and when they purchase, operate, maintain, upgrade, repair, modify, replace, and dispose of these assets. By doing this, a company can minimize loss and theft of their assets, save on maintenance costs, and gain an accurate accounting of the financial value of their assets.

Managing the maintenance of fixed assets is essential to maximizing the life of the asset. Having to deal with maintenance issues is one main differentiator between inventory management and asset management. Because inventory is not a long-term asset for an organization, it is not necessary to track maintenance for it.

In short, asset management is the systematic process of managing the lifecycle of an organization’s assets – from acquisition to disposal. Effective asset management can improve an organization’s productivity, efficiency, and profitability.

When managing inventory and tracking assets, your system should allow you to:

• Know exactly what assets you own, where they are, and who is using them at all times.
• Keep track of all equipment-related documentation such as lease agreements, warranties, and instruction manuals.
• Track assets if they are moved from one location to another.
• Manage the lifecycle of your assets, including maintenance needs and disposition.

An effective asset management system will also be able to track data that can be utilized to analyze your assets, such as calculating their cost, value, or depreciation, or tracking their history to learn more about how certain assets are used. Depreciation can help a company earn revenue from an asset while expensing a part of the asset's cost for every year it is being used.

Similarities Between Inventory Management and Asset Management

Inventory management and asset management share the same ultimate objectives: to optimize resources and reduce costs. Additionally, they both rely on accurate calculations, and can affect the organization’s bottom line if not done correctly.

Effectively Tracking Inventory and Fixed Assets

Both inventory and asset management require tracking of inventory and asset tracking. Many organizations do not track inventory and assets. This of course will affect the organization’s ability to understand its financial health and will at some point affect the organization’s day-to-day functioning. Other organizations manage their inventory and assets manually. Manual inventory management processes can be time-consuming, inefficient, and more prone to errors.

Using Software to Improve Inventory and Asset Management

While managing inventory and assets manually is better than nothing, there are far more effective and less time-consuming ways to do this. Both processes of managing inventory and managing assets can be optimized and stream-lined through the use of software.

For example, for inventory management, software like Assetbots will help you:

• Know the exact types of inventory in your possession and where they are located.
• Easily audit and track inventory from any location without the need for a special scanner.
• Anticipate when inventory stock is running low.
• Determine the optimal time to reorder.
• Know which store or warehouse location needs inventory or has overstock.
• Run reports to analyze data about, among other things, the history, value, and location of your inventory.

For fixed asset management, software like Assetbots will help you:

• Know exactly what assets you own, where they are, and who is using them at all times.
• Store all equipment-related documentation such as lease agreements, warranties, and instruction manuals in one place.
• Track equipment as it moves from one location to another (i.e. from a remote work location to a central office).
• Reserve and check-in/check-out equipment at any location without the need for a special barcode scanner.
• Manage the lifecycle of your assets, including maintenance needs and disposition.
• Run reports on depreciation and other important aspects of your assets such as history, value, and location.

Whether you need to manage inventory assets or fixed assets, Assetbots has a solution for you. Assetbots is currently offering free subscriptions in a limited amount. Visit www.assetbots.com to reserve your free subscription and start saving time and money when managing your organization’s inventory assets and fixed assets.