Understanding Inventory vs. Stock

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What is Stock?

Stock refers to the available quantity of goods and commodities already stored in the warehouse and ready for sale in the market. Stock includes finished goods as well as raw materials.

What is Inventory?

Inventory is a detailed listing of the raw materials, production parts, repair works, maintenance supplies, etc., used by a company’s production unit to create a finished good and to make it ready for sale in the market. Inventory can be described as an intangible or tangible asset significantly important for revenue generation. 

Inventory vs. Stock: Understanding the Difference

While the terms ‘stock’ and ‘inventory’ seem to mean the same thing, in reality, there is quite a difference between inventory and stock. These differences are based on several parameters, and knowing the inventory and stock differences is quintessential for businesses to operate smoothly. 

InventoryStock
This includes all the parts, components, and raw materials involved in an item’s production. This includes the collection or availability of the products already stored in the warehouses and ready for direct sale to the customers.
An inventory provides you with an estimate of stock pricing after the production of goods.This gives an estimate of the total revenue generation from stored goods. 
Essential to update and regulate at least on a quarterly basis.  It needs to be updated daily as stock comes in or goes out. 
It is a tough and complex task to manage as it includes accounting and equity involvement.Relatively easier and involves sales and marketing data, administrative issues, cash flows, etc. which are easy to tackle.
Includes all the logistic flow of a company, including operation cycles, profit & losses, and other things. It includes everything about the company’s sales and does not involve other business assets.
Generally, maintained by the retail and manufacturing team of a business.  It is commonly maintained by the production and manufacturing unit of a company.  
Can be calculated by average weighted methods, LIFO (Last-In, First-Out) and FIFO (First-In, First-Out), etc. Entirely depends upon the current market value.

Inventory and Stock Examples

Both inventory and stock are broad terms, and in most cases, companies use specific kinds of inventory and stock based on their needs and market demands. Businesses need to understand the different kinds of stock and inventory examples to figure out which suits their requirements best. Hence, in this section, we will be looking into the various types of stock and inventory.

Inventory Examples: 

  • Raw materials: These are a company’s supplies to create and finish products. Raw materials are part of most inventories across various companies. 
  • Work-in-progress (WIP): This inventory comprises component parts, raw materials, and labor. It basically consists of all the processed items not sent for sale.
  • MRO Inventory: MRO inventory is responsible for the repair, maintenance, and operational supplies. They are essential to an organization’s daily operations.
  • Cycle Inventory: This inventory characterizes goods purchased regularly and in large quantities. It generally includes the materials directly used in production or common elements of a process.
  • Transit Inventory: This includes goods transported from one location to another. For instance, it includes the movement of goods from manufacturers to warehouses and finally to distribution centers. It is also known as pipeline inventory. 
  • Excess Inventory: Excess inventory is unused products. When your product supply exceeds your anticipated demand, you will end up with excess inventory.
  • Decoupling Inventory: Decoupling inventory reserves extra items apart from safety stock to prevent any work stoppage due to malfunction during manufacturing. 

Stock Examples: 

  • Perishable and Non-perishable Stocks: Perishable stocks are those which degrade within a stipulated time and hence, cannot store for a long time in warehouses. 

On the other hand, non-perishable stocks do not degrade due to external factors even after a long time. Hence, they can be stored for much longer.

  • Stock with Expiry Date: This type of stock is stored with an expiry date or best-before date. Usually, the stocks with the earliest expiry dates are sent out for sale first. 
  • Active Stock: This is a functionality-based stock in which the goods are stored at different locations to fulfill customer demands for extended periods of time.
  • Safety Stock: Safety stock is an additional number of products stored in the inventory to avoid the chances of running out of those goods. This is usually done for items in high demand. 
  • Minimum Stock: It is a bare minimum of stock that a business can keep in its warehouse without experiencing stock depletion. However, a fresh order can be placed to raise the level of stock if a warehouse has less than the required amount of any product on its racks.
  • Maximum Stock: This stock refers to the maximum stock stored in the warehouses above which storage cannot be done.
  • Inactive Stock: This is also known as dead stock. It is the excess stock that can not be reused or resold. Therefore, it must be eliminated from the warehouses to avoid unnecessary space blockage.
  • Work in Progress Stock: This is the type of stock that is under production using raw material. It contains almost finished products and is released by companies according to customer demands. This category of stock is mainly helpful in maintaining seasonal stocks.
  • Optimal Stock: This is an appropriate stock that maximizes a company’s benefits. Optimal stock helps take care of customer demands without paying for excess storage. 

Conclusion

In conclusion, understanding the difference between inventory and stock is an essential step in better business management. Both these components are critical for the healthy functioning of any enterprise. Furthermore, there are different types of inventory and stock, which further highlight how any business can use both factors easily. 

FAQs

What is the main importance of inventory?

Inventory helps businesses plan order stocking and re-stocking, which enables smoother supply chain management.

What does stock-to-sales mean?

The stock-to-sales ratio helps companies understand the time they are taking to liquidate their stocks. This can be calculated by dividing monthly stock by monthly sales.

How do you calculate sales vs. inventory?

Sales can be calculated by:

Number of units sold X Average selling price per unit. 

On the other hand, inventory can be calculated by the formula:
Ending Inventory: Beginning inventory + net purchases – COGS (Cost of goods sold)

How do you convert inventory to sales?

The formula to convert inventory to sales is as follows:
Inventory/ Cost of Sales x 365

Is inventory a purchase or a sale?

Inventory purchase refers to items purchased by companies with the intention of reselling to customers. On the other hand, inventory sale alludes to all available items for sale to customers.

What are inventory management tools?

Inventory management tools are the ways to manage inventory by using some software. It includes JIT (Just-in-time management), MRP (Materials requirement planning), EOQ (Economic Order Quantity), DSI (Days sales of inventory), etc.

How do I know when to replenish stock and inventory?

Inventory can be replenished at specific intervals. It can be managed with the help of several methods like periodic strategy, top-off strategy, demand strategy, etc. 

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