It is pretty common that when you are running an E-commerce business, you come across the terms “inventory” and “stock”. Many businessmen and even researchers also consider both as the same thing but, on the other hand, numerous businessmen and researchers focus their studies on the topic of Inventory vs stock. This difference is only undertaken when you are analyzing the financial position of your business. However, digital stock and inventory software can be used these days for automating the entire inventory management system so that your firm’s efficiency improves.
At the same time, you cannot ignore the core importance of both perspectives because inventory, as well as stock both, are highly attention-needed areas. If there is any problem in the inventory-related processes it will affect your whole business. Meanwhile, when the stock (finished goods) of your company is not up to the exact needs of the consumers, there is no chance that you could flourish in the future.
This is why we focus on learning the importance of inventory vs stock and how we can manage these aspects to grow our business. Let us discuss both these perspectives in detail.
Inventory vs Stock — Key Differences
- On basis of Consisting:
Inventory refers to the cost of parts and raw materials utilized in manufacturing, as well as the cost of work-in-process items and the finished product.
Stock consists of the final product that is ready to be sold out to the customers directly.
- Based on Accounting:
In the case of accounting of inventory, whichever is less, acquiring cost or market price is calculated.
The calculation of stock is done under accounting as; either the acquisition cost or the market price, whichever is lower.
- Based on maintaining:
Inventory is maintained quarterly.
Stock is maintained yearly.
- Based on level:
Inventory of your company must be produced at an optimal level when the profit is maximum.
The stock ideally is zero because it is only ordered according to the demands of the consumers.
- Examples:
Inventory’s example could be defined as; fiber, metal, steel, etc.
Stock’s example is the piece of machinery or any perishable item which is ready to sell.
Conceptual Comparison: Inventory vs Stock
What is Inventory?:
Inventory is considered as the goods, products, tools, or machines that are used in the whole process through which the final product is made. Like starting from the raw materials that are used to make the inventory. Work-in-process goods that are still in the process of processing your final goods. Repair and maintenance supplies that are not actually part of your final product but still they are pretty crucial in terms of shaping and finalizing your end-goods. And finally, the finished goods are ultimately offered to the consumers for selling purposes. All these are considered to comprise your inventory of the business.
We all are aware of the fact that inventory plays a vital role in how your business is being seen out there. If you are producing something unique and innovative, people will consider you the most modern type of business or company. Therefore, it must be your core responsibility to firstly make a clear image of what inventory you are going to make in your business and then also the processes through which it will be ready, which must be checked too.
Using modern inventory and stock management software like Inventooly will be a great source of assistance for your company to manage the processes of the inventory effectively. You need to always be sure that the orders are received at the right time and also proceed timely to make sure there is not any delay in terms of serving your consumers. Therefore, this inventory management software is considered very crucial for managing all the processes relevant to the inventory of your business.
Types of Inventory:
As discussed above, inventory comprises several processes which ultimately result in the making of your desired product known as finished goods. But all these processes and parts through which your final product is made are considered equally important when you consider the inventory of your business.
Following are the main types of inventory discussed in detail to have a more clear view of what inventory is:
- Raw Materials:
Raw materials are the basic components that are used to make the final product of your business. Therefore the initial material or raw material used must be of fine and good quality so that the final product is made as per expectations. However, if your raw material is not of the quality you can not expect the desired result at the end of your inventory process.
Raw materials can be the materials like fiber, steel, metal, frames, etc. if you are making any kind of equipment in your company.
Furthermore, to make sure that the raw materials are of good quality you can always hire an expert who is in charge of the buying process. Due to this, he will make sure that all the raw materials are bought while keeping in view the quality of your products.
- Work in process Inventory:
Work-in-process keeps you aware that the production is still in process and your products are being made by going through some vital procedures. When the raw material is sent for the processing purpose for the making of your final products of the company, it is called work in process inventory. Everybody knows that a product does not come right away in its final position, it has to go under several processes of framing, painting, drying, molding, etc. all such procedures are part of your work-in-process inventory.
In addition to this, it would not be wrong to say that the work-in-process inventory provides you with the final idea of what your product is going to look like in the end. Therefore, many companies also consider a trial before starting the manufacturing process, which makes them sure about whether the result is as per their requirement or not. If not then the relevant thing is improved and then sent for further processing.
- MRO (Maintenance, Repair, and Operating Supplies):
MRO (Maintenance, Repair, and Operating Supplies) is also a major part of your inventory. However, very few people are aware of this part because it does not have a direct connection with the final finished goods of your company. They can be termed as supporting parts of your inventory which are essential to make the finished goods of your business. However, they are not directly involved in your final products but if they are not available, your product could not be approved and finalized.
You can understand MRO supplies by taking the example of gloves, safety glasses for the manufacturing process, computers, etc. All these things are not directly a part of your finished product but they play an important role in making your final product.
- Finished Goods:
The final part of the inventory is finished goods that are also called “ready to sell products”. After going through all the parts and processes stated above, you can finally now sell your final product to your customer as they expected. However, when talking about inventory vs stock, all the above mentioned are essential parts of inventory. But the most important one is considered as the finished good inventory because on it the entire sales and profit of your business are dependent.
Furthermore, it is your company’s responsibility to take necessary measures in terms of storing and delivering the finished goods to the relevant places. Because if you do not take the necessary steps to store your finished goods safely, it might result in poor quality and lack of performance as well.
What is Stock?
The second name of finished goods is known as stock. You can simply say that stock is the final product that is ready and stored on the shelves of your company to sell to the ultimate customers. The stock is valued at the lower of the cost of purchase or the market price. When stock is sold, it is taken off the balance sheet and recorded as revenue on the income statement.
Furthermore, it is also very important to realize that when stock builds up on the balance sheet, it signifies finished goods aren't selling in the market, which is a very concerning situation for management. Because carrying stock on a book is usually extremely costly for an organization, they should either cut production or transfer the product into the market.
Stock - Finished Products:
When the products are ready to sell to the ultimate consumers they are referred to as stock to (Finished products). As you can see, all inventory is in stock, although not all stock is inventory. Understanding how they have been used across the distribution network may not seem like a huge concern because of the minor variation in connotation. However, if the terms are not properly utilized in various sectors of a firm, they can generate some uncertainty.
Therefore, it can be said that the value of all products that are available and directly sold to customers is referred to as stock. They are also termed as finished goods due to this purpose.
Inventory and Stock Control Management:
Inventory and stock control management is very critical for reducing expenses and higher earnings. When companies lose sight of their inventory, productivity suffers. This is where it gets important for us to understand inventory vs stock. Inventory control guarantees that your firm is set up in a way that allows personnel to assemble and distribute products to clients as rapidly as possible when things are working properly. You'll lose sight of where your stock is, how much you have, and what you can sell right now if your goods are poorly handled. Stock control is necessary for several other reasons: minimizing holding costs and avoiding shortages.
- JIT (Just in Time) Technique:
The first and most frequently utilized inventory control technique is (JIT). Most businesses use this method for maintaining their business's inventory in a convenient way. Because it will help you to take the right step forward when needed the most. However, many businesses make their decisions at the very end of the accounting period (that is one year). But it raises a line of difficulties for the people. To minimize such risks, our inventory vs stock JIT technique is different.
Just in time (JIT) is an inventory management strategy that aims to keep inventory levels as low as feasible. After all, any inventory in your storage is therefore giving you money and posing the risk of never being sold.
JIT indicates that products spend almost no time in the warehouse before being purchased by clients for wholesalers and distributors.
- EOQ (Economic Order Quantity):
Economic order quantity is another common inventory control technology that helps your firm to analyze what actual number of stock you need to order. We all are aware of the fact that when a time comes the organization has to order a specific amount of stock.
Furthermore, it is undoubtedly very important to realize that your firm should order the amount of stock while keeping in view the thin line between an overstocking situation and an optimal stock level. EOQ inventory control technique plays a great role in this regard.
- FIFO (First In, First out) Technique:
Another inventory and control technique that helps to manage the levels of your inventory effectively is the FIFO strategy. It helps your business to sell the stock or inventory that was first entered into the business. And the stock that was entered in the last, it will also get to sale at the last as well. This technique helps your business to maintain the inventory as well as keep the correct check on the sales of your business.
Conclusion:
By learning and understanding the value of inventory vs stock, you will now be able to handle your processes efficiently. Inventory and stock both are important aspects when we talk about any business. Both are equally important but inventory is given more attention because all the procedures are monitored effectively that ultimately resulting in a good quality product.
Furthermore, it can be said in simple words that the stuff you sell to the public is referred to as stock products. The products you sell, as well as the resources and equipment needed to manufacture them, are all part of your inventory. Raw materials, work in progress, MRO supplies, and finished goods are the four basic forms of inventory, despite the short definition.