Inventory Supply

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Working with a balance sheet and other documents is an everyday occurrence in accounting. The entries must be accurate to ensure your tax advisor or banker who uses standard business accounting terms can quickly search for the information they need.

Inventory and supplies are two assets and expenditures of any organization. Inventory is the goods being manufactured or purchased for sale; supplies are items used to run a business or manufacture products. As you go through the following article, you will get familiar with the differences between supply and inventory, inventory management, how to manage the inventory supply chain, keeping a supply inventory, and more.

Supply Vs. Inventory: What Is The Difference?

All e-commerce operations hugely depend on inventory and supplies. Each of these terms serves a unique function. The clear distinction between them helps small businesses maintain precise accounting and inventory tracking records.

Both these functions are critical in massive inventory supply chain operations like inventory management, inventory forecasting, and demand planning. The concepts of inventory and supplies signify items a business usually has on hand.
Inventory comprises items that a business sells to obtain a profit. For instance, a grocer’s stock includes grocery items they sell to customers.

Essentially, inventory entails a business’s manufacturing or purchasing items from distributors or vendors. Moreover, inventory may also include raw materials the company uses to manufacture goods it sells.
Various types of inventory can be present in businesses. The typical ones are raw materials, work-in-progress goods, and finished goods.

Supplies are the items that organizations use to manage their day-to-day operations. They assist employees in accomplishing their everyday tasks or tracking revenue. Usually, supplies come with a finite life owing to their use, meaning they denote a cost to businesses.

Some examples are office supplies (pens, printer ink, paper clips, notepads, scissors, receipt papers, etc.), shipping supplies (shipping labels, boxes, packing papers, envelopes, stamps, packaging tapes, etc.), and cleaning supplies (paper towels, trash bags, hand sanitizers, mops, soaps, etc.)

What Is The Difference Between Supplies And Inventory?

Supplies are those items used to accomplish the daily operations of your business. They are not an element of the finished products sold to customers. However, they play a vital role in the processes of any business.

On the one hand, inventory is the raw materials to be converted into finished goods; on the other, it represents the finished goods sold to customers.

What Are Considered Supplies?

Items that support the day-to-day operations of your business are called supplies. The supplies required to differ according to the type of your business. In most cases, office supplies like paper, stationery items, boxes, packaging tapes, etc.

Supplies and equipment are distinct. The equipment is tools used to convert raw materials into finished goods, commonly used repeatedly. Conversely, supplies prove helpful in dealing with business operations. They are frequently exhaustible and come with a limited lifespan once they have met their purpose.

For instance, an office supply reseller mentions price tags (on its items), which will be considered supplies. The reason for considering price tags as supplies is that they are needed for operating the business but are only used once. The printing machine used to prepare black and white and color pages would be considered a piece of equipment.

Inventory Supply

Managing Inventory Vs. Supplies

The management of inventory and supplies is as significant as differentiating them. Let’s look at how these two terms differ:

Inventory management

Inventory management encompasses supervising a company’s stored products. It also guarantees that accurate inventory records and accurate inventory lists are supported.

The activities about inventory management can be accomplished anywhere your business holds inventory. However, most firms opt to store and manage their inventory in a vast warehouse space. For neat management of stock, they use separate shelves.

Inventory management is an umbrella term consisting of multiple distinct processes mentioned below:

  • Collection of inventory at a warehouse
  • Consolidation and storage
  • Inventory control measures like periodic inventory audits
  • Supervising inventory levels and inventory turnover
  • Forecasting demand
  • Inventory control
  • Establishing reorder points and ideal reorder quantities
  • Restocking inventory per the requirement

The signs of proper inventory management are that your business maintains optimal inventory levels and lets inventory quickly pass across the supply chain. As a result, it streamlines warehouse and fulfillment conduits and eventually lets your business run smoothly.

Supplies

Items not tracked as inventory are supplies. The management of supplies can be complex but deals with lesser quantities of material than inventory management. Moreover, supplies don’t directly influence customers.

A business would have a dedicated closet or storage room, or warehouse space to store its supplies. Most companies use boxes, shelves, and cabinets with labels to easily organize their supplies in these closets or rooms.

Like in these closets or rooms with inventory, you need to track how you use supplies, the amount left, and the time to restock inventory supply levels.

Inventory Supply

Managing Supply Chain Inventory: Pitfalls and Opportunities

An organization needs to consider inventory and distribution expenses while designing products. Keeping customers well-versed about when their orders will arrive is also essential. Moreover, the organization needs to know what type of inventory control systems its dealers use. If the organization doesn’t know any of the above-discussed aspects, its business is vulnerable to the pitfalls of inventory management.

Let’s first discuss the pitfalls of managing supply chain inventory and then discuss the opportunities:

Pitfalls:

Pitfall-1: Very little or excess inventory

Robust inventory control is crucial for managing the supply chain. If your organization has excessive inventory, there is the risk of over-purchasing and suffering losses if the product doesn’t sell or goes obsolete.

If your organization has too little inventory, you must wait too long to deliver even the tiniest, least important item. Moreover, there is a risk of losing customers due to a lack of products.

Thoughtful planning and careful monitoring of periodic and historical trends are required to overcome this pitfall.

Pitfall-2: Absence of supply chain metrics

The supply chain’s overall performance relies on the collective performance of the sites. But, typically, each site is being managed by impartial autonomous management teams; each of these teams has its mission and objectives.

The corresponding objectives may not depend on the supply chain’s broader performance. Furthermore, these objectives may clash. Consequently, the various sites might have operational goals which, if fulfilled, lead to disorganization of the entire chain.

Pitfall-3: Incorrect data of delivery status

When placing orders, customers expect to know the delivery date and time. Even when they are waiting, they might want to know the updated status of the order delivery, specifically when the delivery is late.

Plenty of organizations don’t undervalue the significance of timely delivery. But, proper care is not taken for delivering timely and precise updates to customers on the delivery status of orders. As a result, it leads to perplexity, frustration, and loss of generosity.

Companies must track shipping performance and ensure customers stay informed of their order status.

Pitfall-4: Incompetent information systems

Usually, the databases at various operating sites that illustrate inventory status, system environment, imminent production plans, etc., are not interconnected. Occasionally, this situation arises on a single site. Therefore, the process of fetching information can be monotonous. Due to delays in information gathering and transmission, it is impossible to estimate accurate shipment dates. So, customers get entrapped in confusion. Moreover, these delays also demoralize or forbid brief production planning cycles. This ultimately leads to errors in the gross forecast, inventory, and backorder accretion. Frequently, varied needs, personal tastes, and organizational cultures encourage the sites to use various operating systems for the same functional tasks. Therefore, data integration and communication become even more challenging and laborious.

Pitfall-5: Inefficient coordination

The customer orders may comprise multiple items which various divisions supply. If customers ask for a receipt of all things simultaneously, the company process begins as soon as they arrive. Solid coordination between different supplying divisions is vital. Moreover, it helps the divisions to know a target date.

The process of determining a target date can take more time. Moreover, the subjectively generated target dates that don’t consider prevailing backlogs in the supplying divisions are useless. So, the target dates are usually neglected. The inefficient coordination leads to extreme delays and poor customer service. This pitfall also gives rise to inventory accumulation at the merging center.

Opportunities:

The pitfalls discussed above have implied tactics for improvement. Organizations must be able to infer the potential into their supply chain environments. Let’s go through the opportunities in the inventory management system.

Opportunity-1: Design for supply chain management

Aspects like manufacturing, assembly, quality, and serviceability are vital to any organisation. Another essential aspect to add to this list is the ‘design for supply chain management’.

The product designs must be assessed not only based on performance and functionality but also on the resultant expenses and service implications they would experience throughout the product’s supply chain. The same thing applies to the process designs.

Opportunity-2: Restructure organizational incentives​

The majority of companies employ incentive systems that emphasize the group, division, or site. These would impede cooperation.

Multiple sites from varied groups or divisions need to work together to obtain efficiency and effectiveness throughout the system. For that, the companies might have to restructure the organization and develop the latest incentive system. When thinking about improving supply management, it is necessary to implement changes over the company boundaries. Though this will be more challenging to achieve, it must not be neglected.

Opportunity-3: Incorporate databases all over the supply chain

The centralized coordination of crucial data from the various entities is required to achieve robust operational control of a supply chain. The crucial data covers inventory status tracking at all sites, order forecasts, production plans, backlogs, pipeline inventory, and supplier delivery schedules.

These databases must be interconnected to ensure managers can quickly fetch precise information from any point in the supply chain. The advancement in information technology makes it possible to integrate databases among companies. Integrating databases between various companies within an expanded supply chain is necessary to establish strong relationships between vendors and customers.

Opportunity-4: Broad perspective of supply chain​

Manufacturers must comprehend the demands of stakeholders that influence or are influenced by the supply chain. This type of understanding can lead to improved operating efficiencies and targets. Furthermore, it can explore more opportunities outside of the supply chain.

Opportunity-5: Performance measurement of supply chain

The latest incentives and organizational remodels work parallel with the invention of new performance metrics. The adoption of a supply chain perspective is beneficial for these metrics. For example, they must consider inventory measures throughout the supply chain and overall response time rather than lead times of individual sites.

All entities must take responsibility for the supply chain metrics rather than each entity owning these metrics. Moreover, operations managers must evaluate performance frequently, like weekly or monthly. The frequent evaluation of performance streamlines the inventory management system.

Inventory Supply

Inventory Management

Inventory management involves placing orders, storing, using, and selling a company’s inventory. It also covers the administration of components, raw materials, and finished products. Collecting and processing of these items are also included in the inventory management.

In other words, inventory management refers to the whole process of administering inventories right from the raw materials to finished products. The objective of inventory management is to allocate the right products at the right time in the right place. Furthermore, this process aims to restructure inventories to efficiently prevent overstock and understock issues.

Two key methods used in managing the supply chain are materials requirement planning (MRP) and just-in-time (JIT).

Supply Management

Supply management is recognizing, purchasing, and supervising resources and suppliers crucial for a company’s operations.

It also includes acquiring physical goods, services, information, and other essential resources that support the operation and development of the organization. An alternate name of supply management is procurement.

The key objectives of supply management are the proficient allocation of resources, cost control, risk management, and collecting information for commercial decisions.

It also focuses on designing a strategy for developing and maintaining relationships with suppliers, implementing it, and holding suppliers responsible for the same.

Reporting and Analytics

Reporting and analytics facilitate business professionals to obtain sufficient insights and data about prevailing and cutting-edge inventory and warehouse strategies.
For example, the inventory valuation report illustrates inventory valuation for designated items in your inventory. This report also depicts information about the value of growth and shrinkage in inventory with respect to time.

Purchasing

A few years back, all warehouses and stores had to track and register all physical inventories by hand using a pen and paper. Although this method might feature a prolonged track record, it presented various issues. Any system that significantly depends on manual efforts comes with errors. This is especially true in cases of more extensive operations.

Nowadays, companies have begun implementing advanced inventory control systems which depend on physical inventory software to computerize all processes. Rather than counting all inventory items by hand, organizations can use a barcode scanning program.

Inventory Supply

Shipping capabilities

As small e-commerce businesses grow, it is necessary to reconsider shipping logistics and the ability to cope with growth in order quantities. However, it can be challenging.

In outsourcing shipping, it is vital to find one that fulfills the specific requirements of your business concerning budget and capabilities. The shipping capabilities visualize what type of delivery experience you want for your customers. This is combined with the logistical scrutiny of your preferred industry to get a clear perspective of your shipping needs.

Recognizing the shipping capabilities in a supply market is an essential facet of formulating Supply Market Intelligence.

Artificial Intelligence

Manufacturing companies encounter a crucial challenge i.e., identifying the type, place, time, and amount of stock to be ordered and stored. SME conventionally calculates these parameters using Google Sheets, Excel, or other software. But, these traditional solutions can be erroneous, leading to incorrect estimates and understock or overstock issues. These e-solutions can be automated with the use of Artificial Intelligence.

Inventory management can be automatically undertaken with the AI application. The same is accomplished by merging datasets, designing a Machine Learning model, and constantly preparing the model to attain superior accuracy. Results from the AI model pinpoint the most optimal decisions an organization can take.

Some major benefits of using AI in inventory management:

  • Saving time and money
  • Increasing scalability
  • Reducing laborious work
  • Prevent overstock and understock
  • Seamless integration with current systems
  • 24/7 data access

Keeping a Supply Inventory

If you are wondering what is involved in keeping a supply inventory, then the below section is quite handy.

Keeping a supply inventory permits a company to deal with any unforeseen rise in demands. Moreover, it guarantees that products are available in the proper quantity for the same. Furthermore, a solid inventory supply lets a company make the most from periodic price discounts for the bulk purchases of necessary raw materials.

If a facility’s system malfunctions or collapses, keeping a supply inventory makes sure the company will not take an excessive hit in sales. The reason is the supply of products that can be sold when the system performs weakly.

Conclusion

Inventory and supply are crucial for business, but they serve unique purposes to help a firm earn a profit. It is vital to understand the difference between these two terms when recording information for accounting procedures. Businesses can benefit from smooth and efficient operations by meticulously recording, tracking, and supervising both inventory and supply.

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FAQs

An inventory supply list is prepared to track items available in the storage section of an organisation. It helps record items that are purchased and sold. The person responsible for managing the inventory knows which supplies were received and which were shipped.

The 4 types of inventory are as follows:

  • Raw materials/components
  • Work-in-progress inventory
  • Finished goods
  • Maintenance, repair, and operations (MRO) inventory

The following steps help you to manage inventory supply:

  • Regulate your inventory forecasting techniques
  • Take into account the holidays
  • Reassess lead times
  • Carefully select your supply chain partners
  • Find a local consultant
  • Research the location at which you are warehousing or manufacturing
  • Transit to the Cloud

Both inventory and supply are essential elements of a company when it comes to profit-making.

Supplies cost your business, whereas inventory is usually sold to earn a profit. While supplies are bought for use in your business, inventory is bought to be re-sold for profit. Supplies assist the company in its day-to-day operations, whereas inventory refers to materials or finished goods to be manufactured into goods.

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