Knowing various aspects of inventory vs. stock is important for effective business management. To guarantee client satisfaction, one should also be able to manage time-consuming activities related to stock and inventory effectively.
This blog will discuss the relationship between inventory and stock and how to make these elements of a retail business more profitable.
What Is Stock?
Stock refers to any raw materials or goods already in the warehouse and prepared to be shipped to customers or serve a specific business purpose. It excludes equipment, furnishings, and other items of worth to the business. However, it has nothing to do with a particular step in the supply chain. Simply put, it is what is offered to serve clients and deliver goods to them.
What Is Inventory?
Inventory is a detailed summary of the parts that comprise a company's assets, while businesses normally focus on marketable assets. These goods can involve raw materials (production inventory and work-in-progress inventory), goods that will be used to create finished goods, and goods that will be sold directly to customers of the company.
Main Types of Inventory
There are 4 types of inventory: Raw materials, work in progress, MRO supplies, and finished goods:
1. Raw Materials
Raw materials are typically unprocessed or minimally processed materials that undergo further transformation to create finished products. They form the foundation of various industries and are essential for creating a wide range of consumer and industrial goods.
2. Work in Progress (WIP)
WIP, also known as work-in-process inventory, is the inventory that's still being made. Unfinished products that need time to dry, seal, bond, or ferment are a few examples that come under WIP goods. WIP also covers the labor, overhead, raw materials, and other necessities needed to finish manufacturing.
3. Maintenance, Repair, and Operating Supplies (MRO)
MRO supplies support production but does not go into the final product. For instance, if you're managing medical inventory for a business that produces continuous glucose monitors, the following MRO supplies might be used to support production:
- Adhesives
- Gloves
- Packing materials
- Safety glasses
- Calibrators
- Computers
4. Finished Goods
Finished goods are goods that have been packaged and are ready for sale.
Inventory vs. Stock: Understanding the Difference
Inventory and Stock Examples
Let's try to understand inventory vs. stock by taking the example of Paper & Pen Company, an online maker and retailer of notepads. This will help us to better understand how and when to use the phrases "stock" and "inventory."
Inventory for Production
When making notepads, there are important materials involved, like pulp, chemicals, metal wires, plastics, and fabric.
- It also includes the pages that are being worked on before they become actual notepads.
- And, of course, it has the finished notepads that have passed all the checks.
- Plus, all the materials needed to take care of the machines used in making notepads.
All these materials and inventory combined are called inventory used in the production process.
Stock at Paper & Pen Company
The Paper & Pen Company has stocks in two main parts. First, they have the ready-to-ship notepads stored in their warehouse.
- Each notepad has a special number and barcode to find it quickly.
- These notepads are there so they can quickly send them out when people want to buy.
Second, they also have the pulp they make from wood.
- This special wood material is important for making paper, and they sell it to other companies that make paper.
Both the read-to-ship notepads and the wood pulp will be termed as stock at the Paper & Pen Company.
How to Manage Inventory and Stock Efficiently & Why It's Important
Managing inventory is very time-consuming because it is complex. In addition, the manual calculation can lead to eros which can further lead to stock shortages and reduce consumer loyalty. On the other hand, overstocks reduce profitability. So, what's the solution?
An automated inventory can watch stocks, manage SKUs, optimize product allocation across regions and retailers, and grow into new fulfillment/distribution center sites based on demand.
Added advantages include:
- A rise in productivity
- Reduced product and raw material losses
- Better distribution
- Better processes
- Labor cost reductions
- Real-time sales information
- Increased regulation of goods entry and departure
Instead of being large, expensive places to store goods, warehouses will transform into real distribution hubs that can be customized to the specific requirements of the organization.
Simplify Inventory and Stock Tracking With TranZact
Not properly overviewing "stock" and "inventory" can really affect businesses. Monitoring inventory movement throughout your supply chain is most important if you operate an online business that only sells finished goods to customers.
The secret to supply chain efficiency with TranZact is using its inventory management software and knowing how much stock you have and how much is ready to sell.
FAQs on Inventory vs. Stock
1. What is anticipation inventory vs. safety stock?
The difference between anticipation inventory vs. safety stock is that anticipation inventory refers to inventory strategically built up to meet expected demand during a specific period or event. On the other hand, safety stock is additional inventory held as a buffer to mitigate uncertainties such as fluctuations in demand, supply chain disruptions, or lead time variability.
2. When should inventory and supply be refilled?
Restocking and refilling inventory are essential components of supply chain management. You can use tools like inventory management software to make wise inventory selections and determine when to restock your supplies.
3. What are tools for inventory management?
Tools for inventory management are used to supplement a company's logistics procedures. Online retailers may extend their logistical network while keeping track of inventory in real-time by employing inventory technologies and automation. It gives businesses access to up-to-date inventory data without requiring them to get involved in day-to-day activities.
4. How do buffer inventory and safety stock differ from one another?
Buffer inventory is extra stock kept on hand to deal with changes in demand or supply. On the other hand, safety stock is an additional stock held to mitigate the risk of stockouts due to unexpected fluctuations in demand or lead time variability. Regarding buffer inventory vs. safety stock, buffer inventory is more strategic and proactive, whereas the safety stock is more reactive and responsive.
5. How does stock in a trade differ from inventory?
The difference between stock in trade vs. inventory is stock in trade is specifically related to sales. On the other hand, inventory has a larger scope and includes all assets held for production, distribution, and sale.
6. What distinguishes inventory holding costs from safety stock?
When it comes to the difference between inventory holding costs vs. safety stock, inventory holding costs are the expenses incurred by a business for storing and maintaining inventory. Meanwhile, safety stock represents the additional inventory held specifically to reduce the risk of stockouts.
