Asset vs. Inventory: What’s The Difference And How Can Businesses Protect Both?
Inventory and assets are two vital elements in an organization because they make up most of the business. Both terms are classified as ‘assets’ because the company owns both. Though asset and inventory may seem similar, they each have unique properties and aren’t necessarily referring to the same thing. Yet, these two terms tend to get used interchangeably.
Understanding the difference between these two terms is essential because one loses value the longer it is held. This article will explore the key differences between assets and inventory and discuss how to protect them both.
What Is An Asset?
As mentioned before, inventory and assets both fall under the total assets the company owns. This is what causes confusion between the two terms. To understand their difference, we need first to distinguish what makes an asset different from another type of asset, called inventory.
The word ‘asset’ often refers to the fixed assets businesses own for the longer term and use to generate income. The company expects to profit from this type of asset for its entire useful life. A fixed asset’s value diminishes along with its usefulness.
Examples of this type of asset are plants and equipment like computers, company vehicles, furniture, and many more.
What Is Inventory?
On the other hand, inventory is an asset that a company owns for a shorter term than assets or fixed assets. Inventory is sometimes referred to as current assets to differentiate them from fixed assets. Unlike fixed assets, they are more liquid and can be converted into cash in less than one business year.
Inventory can be the merchandise that a company has on hand or the materials used to create a product. When you have raw materials in stock or other components purchased from suppliers and use them to manufacture a product, these items fall under inventory because they meet the criteria of liquidity within one year.
Stationery items or consumables like paper, printer cartridges, pens, and the like also fall under the inventory category. Even though these items are not meant to be sold to customers, they still move fast within the business.
Another key trait of an inventory is that if their purpose is for consumer consumption, they need to be sold as quickly as possible to generate cash flow. If an organization holds too much inventory stock for a very long time, it ties up cash in unsold stock, which incurs carrying costs. Moreover, unsold stock can spoil, become damaged, or become obsolete the longer they stay in the warehouse.
On the other end of the spectrum, having too little inventory will make companies lose sales because they won’t have enough products to sell, especially when consumer demand increases.
What are the dangers of mismanaging assets and inventory?
After understanding the difference between assets and inventory, the next action is to correctly manage and protect these two. Knowing their differences is key to accurately tracking and protecting each of them.
Not tracking means losing or misplacing costly fixed assets or letting current assets get old or outdated. This, in turn, can cost organizations a lot of time and money. Fixed assets are essential items that make day-to-day company routines possible.
Without smart asset management, you will never know the last time the equipment was used or who used it last, should the item go missing. Without smart inventory management, you will never know which items are likely to increase in demand, and your business can suffer from inventory shortage, especially in the peak season. It’s virtually impossible to track assets, and inventory, without a system to manage and protect them.
You will need smart asset and inventory management.
How can an asset and inventory system help?
A robust smart asset management system is crucial in managing fixed assets and inventory stock. It eliminates human error, which could add up over time, resulting in inaccurate reports, disappearing assets, and miserable sales figures.
Investing in a good asset tracking solution like Teqtivity helps you monitor your fixed assets’ maintenance repairs and schedule repairs. An effective smart asset vending system with smart lockers like Teqube can also improve your inventory control because you can monitor stock levels, helping you avoid overstocking or stockouts.
When you manage your assets properly, you get to maintain accurate asset records, prepare and file records a lot quicker, manage change requests easily, automate asset transfers, and maintain your assets in top condition. This goes the same with inventory. You’ll be able to track your products, prevent theft, keep track of your company’s financial health, and improve customer satisfaction.
Once you have an asset tracking system in place, you will always get a complete picture of all your fixed assets along with your inventory stock. This then helps you stay on top of all your assets at any given point in time.
The process and terms may be the same, but it pays to understand which of the total assets you own are fixed assets or inventory (current assets). Having that knowledge outlined in this article will enable you to apply the correct focus on each one. Make sure to choose an asset lifecycle management solution that can meet your organization’s needs for both asset types. That way, you’ll be able to protect both your assets and your inventory, ultimately improving your bottom line.
Want to learn more about protecting your assets? Contact us today.