Table of contents
Table of contents
The short answer to this question is no, inventory and stock are not the same thing. Though many people use the two words interchangeably, they actually have different meanings. We’re not just being picky over semantics here either.
Understanding them correctly will help you manage your business more efficiently – and that’s crucial in a business. With that in mind, we’ll explain what’s what!
Stock is the finished product you sell to your customers. So that’s nice and simple.
Inventory includes the items you sell to customers, as well as the goods, equipment and materials you use to produce the sale. For instance, an empty hotel room you need to repaint so it can be sold to customers by the night, or the hand tools you use in your workshop.
Inventory can be split into four categories, one of which is your saleable stock items. We’ve listed the others below to show the boss we know what we’re doing.
As the title suggests, these are the basic materials and components you need to make your final product. They’re the building blocks from which your saleable items are built.
This is the stuff you need to support production. MRO supplies can include everything from assets such as large equipment and machinery, to smaller items such as safety apparatus, hand tools, and computers.
These are the goods still in production. They’re not yet complete products ready to be sold, so they’re a Work in Progress. For example, edible goods that need to finish fermenting before you can sell them. WIP also includes the raw materials, labour, and overheads which go into making the production process happen.
When it comes to understanding stock and inventory, it’s less about them being different and more about being specific. Whilst stock sits within your inventory process, the different types of inventory are the other cogs in that process. They’re interlinked, but not interchangeable.
No matter what your business provides to its customers, you need to have the resources which allow you to do this. Stock control helps your business operate efficiently.
Overstocking raw materials might leave you with storage issues (and storage costs which will chomp into your profit). Tying up cash in overstock can also restrict your cash flow until you make sales.
On the flip side, fail to act on low inventory levels in enough time, and you might be left with nothing to sell and a lot of very disgruntled customers.
Neither scenario is ideal, which is why monitoring stock and inventory is so important. Stellar stock organisation also:
If you spend a load of cash on excess stock you won’t sell straight away, there’s less money available for other areas which need attention. This could then lead to cash flow struggles which skews your future cash flow forecasting. For businesses of all shapes and sizes, every penny really does count – but hey, you don’t need us to tell you that.
Striking the perfect balance can be tricky – especially for small businesses who rely on sales income to make their next order, or start-ups still getting to grips with understanding demand. Getting a feel for how inventory cycles through your business (and when) helps you provide for your customers in a timely fashion. It can make the difference between a happy customer or a negative online review.
Holding items in bulk is tempting, especially if you get a bulk discount, but it does mean you run the risk of being left with things you can’t shift. This then inevitably leads to wasted stock (and money) or having to run discount sales, which could damage the identity of your brand.
On the flip-side, keeping lower levels of stock – or even operating on-demand – comes with the risk of running out and leaving your customer empty-handed. You might build a buzz, but ongoing problems with availability usually means customers are less likely to remain loyal to your business.
Quantity of stock is a sweet spot all business-owners need to find. Just don’t let it detract from the importance of quality too – but that’s a topic for another day. (OK we can’t help ourselves; don’t forsake your standards to meet demand faster.)
Having a large amount of inventory means keeping it somewhere safely until you sell or use it. Whilst some items are meant for the long-term (such as equipment), the longer you have surplus items, the higher the risk of theft or damage.
Theft can happen from outside, but also from inside the business. Naturally, you’re only going to employ staff you trust and can rely on, but as a business-owner it’s important to put emotion aside and think with a low-risk mentality.
There are various insurance policies you can invest in to protect you from the effects of stock theft or damage. Just remember that the more cover you require, the more you’ll have to spend.
More inventory also means more space. If you’re storing items on-site, this might affect the amount of usable space available to work in, which in turn can impact your ability to make sales. For instance, a small bricks-and-mortar shop made smaller by the need to store your raw materials means there’s less room on the shop floor. Similarly, a massive stationery supply can affect how many staff you have room for, which in turn will restrict the number of clients you can take on.
Off-site storage means additional costs you might otherwise be able to avoid, as well as the inconvenience of moving items between sites. There’s also the question of security. It might be time to get the kettle on.
From raw materials and MRO, right through to sales and returns, record your inventory along the way. You might need to devise systems which help you do this, or use software which helps you keep track. Some providers (we’re trying to be subtle – we mean us) include stock control features as part of their bookkeeping software.
It’s important for all businesses, but particularly essential for those of you trading perishable goods such as food, drinks or natural skincare. The last thing you want are shelves full of out-of-date goods you can’t even give away, never mind sell for a profit!
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A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible.
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