diff --git a/alembic.ini b/alembic.ini
new file mode 100644
index 0000000..634a012
--- /dev/null
+++ b/alembic.ini
@@ -0,0 +1,85 @@
+# A generic, single database configuration.
+
+[alembic]
+# path to migration scripts
+script_location = migrations
+
+# template used to generate migration files
+# file_template = %%(rev)s_%%(slug)s
+
+# timezone to use when rendering the date
+# within the migration file as well as the filename.
+# string value is passed to dateutil.tz.gettz()
+# leave blank for localtime
+# timezone =
+
+# max length of characters to apply to the
+# "slug" field
+# truncate_slug_length = 40
+
+# set to 'true' to run the environment during
+# the 'revision' command, regardless of autogenerate
+# revision_environment = false
+
+# set to 'true' to allow .pyc and .pyo files without
+# a source .py file to be detected as revisions in the
+# versions/ directory
+# sourceless = false
+
+# version location specification; this defaults
+# to migrations/versions.  When using multiple version
+# directories, initial revisions must be specified with --version-path
+# version_locations = %(here)s/bar %(here)s/bat migrations/versions
+
+# the output encoding used when revision files
+# are written from script.py.mako
+# output_encoding = utf-8
+
+# SQLite URL example
+sqlalchemy.url = sqlite:////app/storage/db/db.sqlite
+
+[post_write_hooks]
+# post_write_hooks defines scripts or Python functions that are run
+# on newly generated revision scripts.  See the documentation for further
+# detail and examples
+
+# format using "black" - use the console_scripts runner, against the "black" entrypoint
+# hooks=black
+# black.type=console_scripts
+# black.entrypoint=black
+# black.options=-l 79
+
+# Logging configuration
+[loggers]
+keys = root,sqlalchemy,alembic
+
+[handlers]
+keys = console
+
+[formatters]
+keys = generic
+
+[logger_root]
+level = WARN
+handlers = console
+qualname =
+
+[logger_sqlalchemy]
+level = WARN
+handlers =
+qualname = sqlalchemy.engine
+
+[logger_alembic]
+level = INFO
+handlers =
+qualname = alembic
+
+[handler_console]
+class = StreamHandler
+args = (sys.stderr,)
+level = NOTSET
+formatter = generic
+
+[formatter_generic]
+format = %(levelname)-5.5s [%(name)s] %(message)s
+datefmt = %H:%M:%S
\ No newline at end of file
diff --git a/app/__init__.py b/app/__init__.py
new file mode 100644
index 0000000..e69de29
diff --git a/app/api/__init__.py b/app/api/__init__.py
new file mode 100644
index 0000000..e69de29
diff --git a/app/api/v1/__init__.py b/app/api/v1/__init__.py
new file mode 100644
index 0000000..e69de29
diff --git a/app/api/v1/api.py b/app/api/v1/api.py
new file mode 100644
index 0000000..63f7b05
--- /dev/null
+++ b/app/api/v1/api.py
@@ -0,0 +1,7 @@
+from fastapi import APIRouter
+
+from app.api.v1 import health, inventory
+
+api_router = APIRouter()
+api_router.include_router(health.router, prefix="/health", tags=["health"])
+api_router.include_router(inventory.router, prefix="/inventory", tags=["inventory"])
\ No newline at end of file
diff --git a/app/api/v1/health.py b/app/api/v1/health.py
new file mode 100644
index 0000000..17426cb
--- /dev/null
+++ b/app/api/v1/health.py
@@ -0,0 +1,16 @@
+from fastapi import APIRouter, Depends
+from sqlalchemy.orm import Session
+
+from app.db.session import get_db
+
+router = APIRouter()
+
+
+@router.get("")
+def health_check(db: Session = Depends(get_db)):
+    """
+    Health check endpoint that verifies API and database connection are working.
+    """
+    # Simple db query to check database connection
+    db.execute("SELECT 1")
+    return {"status": "ok", "message": "API is operational"}
\ No newline at end of file
diff --git a/app/api/v1/inventory.py b/app/api/v1/inventory.py
new file mode 100644
index 0000000..30fbf4b
--- /dev/null
+++ b/app/api/v1/inventory.py
@@ -0,0 +1,149 @@
+from typing import Any, List, Optional
+
+from fastapi import APIRouter, Depends, HTTPException, Query, status
+from sqlalchemy.exc import IntegrityError
+from sqlalchemy.orm import Session
+
+from app.db.session import get_db
+from app.models.inventory import Item as ItemModel
+from app.schemas.inventory import Item, ItemCreate, ItemList, ItemUpdate
+
+router = APIRouter()
+
+
+@router.post("", response_model=Item, status_code=status.HTTP_201_CREATED)
+def create_item(*, db: Session = Depends(get_db), item_in: ItemCreate) -> Any:
+    """
+    Create a new inventory item.
+    """
+    # Check if an item with the same SKU already exists (if SKU is provided)
+    if item_in.sku:
+        existing_item = db.query(ItemModel).filter(ItemModel.sku == item_in.sku).first()
+        if existing_item:
+            raise HTTPException(
+                status_code=status.HTTP_400_BAD_REQUEST,
+                detail=f"Item with SKU {item_in.sku} already exists",
+            )
+
+    try:
+        db_item = ItemModel(**item_in.model_dump(exclude_unset=True))
+        db.add(db_item)
+        db.commit()
+        db.refresh(db_item)
+        return db_item
+    except IntegrityError:
+        db.rollback()
+        raise HTTPException(
+            status_code=status.HTTP_400_BAD_REQUEST,
+            detail="Could not create item. Check for duplicate SKU or invalid data.",
+        )
+
+
+@router.get("", response_model=ItemList)
+def read_items(
+    *,
+    db: Session = Depends(get_db),
+    skip: int = 0,
+    limit: int = 100,
+    name: Optional[str] = None,
+    category: Optional[str] = None,
+    sku: Optional[str] = None,
+) -> Any:
+    """
+    Retrieve inventory items with optional filtering.
+    """
+    query = db.query(ItemModel)
+    
+    # Apply filters if provided
+    if name:
+        query = query.filter(ItemModel.name.ilike(f"%{name}%"))
+    if category:
+        query = query.filter(ItemModel.category == category)
+    if sku:
+        query = query.filter(ItemModel.sku == sku)
+
+    # Get total count for pagination info
+    total = query.count()
+    
+    # Apply pagination
+    items = query.order_by(ItemModel.name).offset(skip).limit(limit).all()
+    
+    return {"items": items, "total": total}
+
+
+@router.get("/{item_id}", response_model=Item)
+def read_item(*, db: Session = Depends(get_db), item_id: int) -> Any:
+    """
+    Get a specific inventory item by ID.
+    """
+    item = db.query(ItemModel).filter(ItemModel.id == item_id).first()
+    if not item:
+        raise HTTPException(
+            status_code=status.HTTP_404_NOT_FOUND,
+            detail=f"Item with ID {item_id} not found",
+        )
+    return item
+
+
+@router.put("/{item_id}", response_model=Item)
+def update_item(
+    *, db: Session = Depends(get_db), item_id: int, item_in: ItemUpdate
+) -> Any:
+    """
+    Update an existing inventory item.
+    """
+    db_item = db.query(ItemModel).filter(ItemModel.id == item_id).first()
+    if not db_item:
+        raise HTTPException(
+            status_code=status.HTTP_404_NOT_FOUND,
+            detail=f"Item with ID {item_id} not found",
+        )
+
+    # Check if there are any fields to update
+    update_data = item_in.model_dump(exclude_unset=True)
+    if not update_data:
+        raise HTTPException(
+            status_code=status.HTTP_400_BAD_REQUEST,
+            detail="No fields to update were provided",
+        )
+
+    # Check if SKU already exists when updating SKU
+    if "sku" in update_data and update_data["sku"] and update_data["sku"] != db_item.sku:
+        existing_item = db.query(ItemModel).filter(ItemModel.sku == update_data["sku"]).first()
+        if existing_item:
+            raise HTTPException(
+                status_code=status.HTTP_400_BAD_REQUEST,
+                detail=f"Item with SKU {update_data['sku']} already exists",
+            )
+
+    try:
+        for field, value in update_data.items():
+            setattr(db_item, field, value)
+        
+        db.add(db_item)
+        db.commit()
+        db.refresh(db_item)
+        return db_item
+    except IntegrityError:
+        db.rollback()
+        raise HTTPException(
+            status_code=status.HTTP_400_BAD_REQUEST,
+            detail="Could not update item. Check for duplicate SKU or invalid data.",
+        )
+
+
+@router.delete("/{item_id}", status_code=status.HTTP_204_NO_CONTENT, response_model=None)
+def delete_item(*, db: Session = Depends(get_db), item_id: int) -> Any:
+    """
+    Delete an inventory item.
+    """
+    db_item = db.query(ItemModel).filter(ItemModel.id == item_id).first()
+    if not db_item:
+        raise HTTPException(
+            status_code=status.HTTP_404_NOT_FOUND,
+            detail=f"Item with ID {item_id} not found",
+        )
+    
+    db.delete(db_item)
+    db.commit()
+    return None
\ No newline at end of file
diff --git a/app/core/__init__.py b/app/core/__init__.py
new file mode 100644
index 0000000..e69de29
diff --git a/app/core/config.py b/app/core/config.py
new file mode 100644
index 0000000..2cd9eaa
--- /dev/null
+++ b/app/core/config.py
@@ -0,0 +1,30 @@
+from pathlib import Path
+from typing import List, Optional, Union
+
+from pydantic import AnyHttpUrl, validator
+from pydantic_settings import BaseSettings
+
+
+class Settings(BaseSettings):
+    API_V1_STR: str = "/api/v1"
+    API_VERSION: str = "0.1.0"
+    PROJECT_NAME: str = "Simple Inventory Manager API"
+    
+    # CORS Configuration
+    BACKEND_CORS_ORIGINS: List[AnyHttpUrl] = []
+
+    @validator("BACKEND_CORS_ORIGINS", pre=True)
+    def assemble_cors_origins(cls, v: Union[str, List[str]]) -> Union[List[str], str]:
+        if isinstance(v, str) and not v.startswith("["):
+            return [i.strip() for i in v.split(",")]
+        elif isinstance(v, (list, str)):
+            return v
+        raise ValueError(v)
+    
+    class Config:
+        case_sensitive = True
+        env_file = ".env"
+
+
+# Create global settings object
+settings = Settings()
\ No newline at end of file
diff --git a/app/db/__init__.py b/app/db/__init__.py
new file mode 100644
index 0000000..e69de29
diff --git a/app/db/base.py b/app/db/base.py
new file mode 100644
index 0000000..574b8e5
--- /dev/null
+++ b/app/db/base.py
@@ -0,0 +1,3 @@
+# Import all the models here so Alembic can discover them
+from app.db.base_class import Base  # noqa
+from app.models.inventory import Item  # noqa
\ No newline at end of file
diff --git a/app/db/base_class.py b/app/db/base_class.py
new file mode 100644
index 0000000..8c1800b
--- /dev/null
+++ b/app/db/base_class.py
@@ -0,0 +1,14 @@
+from typing import Any
+
+from sqlalchemy.ext.declarative import as_declarative, declared_attr
+
+
+@as_declarative()
+class Base:
+    id: Any
+    __name__: str
+
+    # Generate __tablename__ automatically based on class name
+    @declared_attr
+    def __tablename__(cls) -> str:
+        return cls.__name__.lower()
\ No newline at end of file
diff --git a/app/db/session.py b/app/db/session.py
new file mode 100644
index 0000000..e02a4db
--- /dev/null
+++ b/app/db/session.py
@@ -0,0 +1,28 @@
+from pathlib import Path
+
+from sqlalchemy import create_engine
+from sqlalchemy.ext.declarative import declarative_base
+from sqlalchemy.orm import sessionmaker
+
+# Ensure the database directory exists
+DB_DIR = Path("/app") / "storage" / "db"
+DB_DIR.mkdir(parents=True, exist_ok=True)
+
+SQLALCHEMY_DATABASE_URL = f"sqlite:///{DB_DIR}/db.sqlite"
+
+engine = create_engine(
+    SQLALCHEMY_DATABASE_URL,
+    connect_args={"check_same_thread": False}  # Needed for SQLite
+)
+SessionLocal = sessionmaker(autocommit=False, autoflush=False, bind=engine)
+
+Base = declarative_base()
+
+
+# Dependency to get DB session
+def get_db():
+    db = SessionLocal()
+    try:
+        yield db
+    finally:
+        db.close()
\ No newline at end of file
diff --git a/app/models/__init__.py b/app/models/__init__.py
new file mode 100644
index 0000000..e69de29
diff --git a/app/models/inventory.py b/app/models/inventory.py
new file mode 100644
index 0000000..8b85e35
--- /dev/null
+++ b/app/models/inventory.py
@@ -0,0 +1,22 @@
+from datetime import datetime
+from typing import Optional
+
+from sqlalchemy import Column, DateTime, Float, Integer, String, Text
+
+from app.db.base_class import Base
+
+
+class Item(Base):
+    """
+    Database model for inventory items.
+    """
+    id = Column(Integer, primary_key=True, index=True)
+    name = Column(String(255), nullable=False, index=True)
+    description = Column(Text, nullable=True)
+    quantity = Column(Integer, nullable=False, default=0)
+    unit_price = Column(Float, nullable=True)
+    sku = Column(String(50), unique=True, index=True, nullable=True)
+    category = Column(String(100), nullable=True, index=True)
+    location = Column(String(100), nullable=True)
+    created_at = Column(DateTime, default=datetime.utcnow)
+    updated_at = Column(DateTime, default=datetime.utcnow, onupdate=datetime.utcnow)
\ No newline at end of file
diff --git a/app/schemas/__init__.py b/app/schemas/__init__.py
new file mode 100644
index 0000000..a356617
--- /dev/null
+++ b/app/schemas/__init__.py
@@ -0,0 +1,8 @@
+from app.schemas.inventory import (
+    ItemBase,
+    ItemCreate,
+    ItemUpdate,
+    ItemInDB,
+    Item,
+    ItemList,
+)
\ No newline at end of file
diff --git a/app/schemas/inventory.py b/app/schemas/inventory.py
new file mode 100644
index 0000000..b04ad96
--- /dev/null
+++ b/app/schemas/inventory.py
@@ -0,0 +1,60 @@
+from datetime import datetime
+from typing import List, Optional
+
+from pydantic import BaseModel, Field, validator
+
+
+class ItemBase(BaseModel):
+    """Base model with common attributes for an inventory item."""
+    name: str = Field(..., description="Name of the inventory item", min_length=1, max_length=255)
+    description: Optional[str] = Field(None, description="Detailed description of the item")
+    quantity: int = Field(..., description="Current quantity in stock", ge=0)
+    unit_price: Optional[float] = Field(None, description="Price per unit", ge=0)
+    sku: Optional[str] = Field(None, description="Stock Keeping Unit - unique identifier", max_length=50)
+    category: Optional[str] = Field(None, description="Category the item belongs to", max_length=100)
+    location: Optional[str] = Field(None, description="Storage location of the item", max_length=100)
+
+
+class ItemCreate(ItemBase):
+    """Schema for creating a new inventory item."""
+    pass
+
+
+class ItemUpdate(BaseModel):
+    """Schema for updating an existing inventory item - all fields are optional."""
+    name: Optional[str] = Field(None, description="Name of the inventory item", min_length=1, max_length=255)
+    description: Optional[str] = Field(None, description="Detailed description of the item")
+    quantity: Optional[int] = Field(None, description="Current quantity in stock", ge=0)
+    unit_price: Optional[float] = Field(None, description="Price per unit", ge=0)
+    sku: Optional[str] = Field(None, description="Stock Keeping Unit - unique identifier", max_length=50)
+    category: Optional[str] = Field(None, description="Category the item belongs to", max_length=100)
+    location: Optional[str] = Field(None, description="Storage location of the item", max_length=100)
+
+    @validator("*", pre=True)
+    def check_none_fields(cls, v):
+        """Make sure at least one field is not None to perform an update"""
+        return v
+
+    class Config:
+        extra = "forbid"
+
+
+class ItemInDB(ItemBase):
+    """Schema for an inventory item as stored in the database."""
+    id: int
+    created_at: datetime
+    updated_at: datetime
+
+    class Config:
+        from_attributes = True
+
+
+class Item(ItemInDB):
+    """Schema for returning an inventory item."""
+    pass
+
+
+class ItemList(BaseModel):
+    """Schema for returning a list of inventory items."""
+    items: List[Item]
+    total: int
\ No newline at end of file
diff --git a/main.py b/main.py
new file mode 100644
index 0000000..937ede0
--- /dev/null
+++ b/main.py
@@ -0,0 +1,44 @@
+from fastapi import FastAPI
+from fastapi.middleware.cors import CORSMiddleware
+from fastapi.openapi.utils import get_openapi
+
+from app.api.v1.api import api_router
+from app.core.config import settings
+
+app = FastAPI(
+    title=settings.PROJECT_NAME,
+    openapi_url="/openapi.json",
+)
+
+# Set all CORS enabled origins
+if settings.BACKEND_CORS_ORIGINS:
+    app.add_middleware(
+        CORSMiddleware,
+        allow_origins=[str(origin) for origin in settings.BACKEND_CORS_ORIGINS],
+        allow_credentials=True,
+        allow_methods=["*"],
+        allow_headers=["*"],
+    )
+
+app.include_router(api_router, prefix=settings.API_V1_STR)
+
+
+def custom_openapi():
+    if app.openapi_schema:
+        return app.openapi_schema
+    openapi_schema = get_openapi(
+        title=settings.PROJECT_NAME,
+        version=settings.API_VERSION,
+        description="Simple Inventory Manager API",
+        routes=app.routes,
+    )
+    app.openapi_schema = openapi_schema
+    return app.openapi_schema
+
+
+app.openapi = custom_openapi
+
+if __name__ == "__main__":
+    import uvicorn
+
+    uvicorn.run("main:app", host="0.0.0.0", port=8000, reload=True)
\ No newline at end of file
diff --git a/migrations/env.py b/migrations/env.py
new file mode 100644
index 0000000..ac80667
--- /dev/null
+++ b/migrations/env.py
@@ -0,0 +1,82 @@
+import os
+from logging.config import fileConfig
+
+from alembic import context
+from sqlalchemy import engine_from_config, pool
+
+# Import Base metadata from app
+from app.db.base import Base
+
+# this is the Alembic Config object, which provides
+# access to the values within the .ini file in use.
+config = context.config
+
+# Interpret the config file for Python logging.
+# This line sets up loggers basically.
+if config.config_file_name is not None:
+    fileConfig(config.config_file_name)
+
+# add your model's MetaData object here
+# for 'autogenerate' support
+target_metadata = Base.metadata
+
+# other values from the config, defined by the needs of env.py,
+# can be acquired:
+# my_important_option = config.get_main_option("my_important_option")
+# ... etc.
+
+
+def run_migrations_offline() -> None:
+    """Run migrations in 'offline' mode.
+
+    This configures the context with just a URL
+    and not an Engine, though an Engine is acceptable
+    here as well.  By skipping the Engine creation
+    we don't even need a DBAPI to be available.
+
+    Calls to context.execute() here emit the given string to the
+    script output.
+
+    """
+    url = config.get_main_option("sqlalchemy.url")
+    context.configure(
+        url=url,
+        target_metadata=target_metadata,
+        literal_binds=True,
+        dialect_opts={"paramstyle": "named"},
+        render_as_batch=True,  # SQLite needs this for migrations that alter tables
+    )
+
+    with context.begin_transaction():
+        context.run_migrations()
+
+
+def run_migrations_online() -> None:
+    """Run migrations in 'online' mode.
+
+    In this scenario we need to create an Engine
+    and associate a connection with the context.
+
+    """
+    connectable = engine_from_config(
+        config.get_section(config.config_ini_section, {}),
+        prefix="sqlalchemy.",
+        poolclass=pool.NullPool,
+    )
+
+    with connectable.connect() as connection:
+        is_sqlite = connection.dialect.name == "sqlite"
+        context.configure(
+            connection=connection,
+            target_metadata=target_metadata,
+            render_as_batch=is_sqlite,  # SQLite needs this for migrations that alter tables
+        )
+
+        with context.begin_transaction():
+            context.run_migrations()
+
+
+if context.is_offline_mode():
+    run_migrations_offline()
+else:
+    run_migrations_online()
\ No newline at end of file
diff --git a/migrations/script.py.mako b/migrations/script.py.mako
new file mode 100644
index 0000000..37d0cac
--- /dev/null
+++ b/migrations/script.py.mako
@@ -0,0 +1,24 @@
+"""${message}
+
+Revision ID: ${up_revision}
+Revises: ${down_revision | comma,n}
+Create Date: ${create_date}
+
+"""
+from alembic import op
+import sqlalchemy as sa
+${imports if imports else ""}
+
+# revision identifiers, used by Alembic.
+revision = ${repr(up_revision)}
+down_revision = ${repr(down_revision)}
+branch_labels = ${repr(branch_labels)}
+depends_on = ${repr(depends_on)}
+
+
+def upgrade() -> None:
+    ${upgrades if upgrades else "pass"}
+
+
+def downgrade() -> None:
+    ${downgrades if downgrades else "pass"}
\ No newline at end of file
diff --git a/requirements.txt b/requirements.txt
new file mode 100644
index 0000000..10881ab
--- /dev/null
+++ b/requirements.txt
@@ -0,0 +1,9 @@
+fastapi>=0.100.0
+uvicorn>=0.22.0
+sqlalchemy>=2.0.0
+alembic>=1.11.0
+pydantic>=2.0.0
+pydantic-settings>=2.0.0
+python-dotenv>=1.0.0
+email-validator>=2.0.0
+ruff>=0.1.0
\ No newline at end of file