We usually use the words “inventory” and “stock” interchangeably. But is there any difference between the two? Are these terms analogous?
Let’s understand the differences between the terms; stock and inventory.
What is Stock?
Products sold by companies come under the category of stock. It can be finished products, raw materials, parts, or any other goods that the company sells to its clients and generates revenue.
Examples of Stock
- If a company sells manufactured furniture then products like tables, chairs and other items will be its stock.
- If some business deals with automobile parts then products like tires will be the stock.
- Carbon black could be stock for a company that sells raw materials.
What is Inventory?
Inventory has a wider meaning when compared to stock. Products, raw materials, and tools used to create end products all come under inventory. In other words, everything that a company owns is its inventory.
Examples of Inventory
- For a car parts business, the inventory includes everything from rubber, metal parts, and carbon black to tires and engines.
- For a furniture business, wood, adhesives, cutting tools, and end products all come under the category of inventory.
Types of Inventory
Inventory is categorized into four major types.
- Raw materials
- Work in Progress (WIP)
- Maintenance, Repair, and Operating Supplies (MRO)
- Finished Goods
- Raw Materials
The elements and items used to create an end product are raw materials. In a furniture company, the raw materials would be wood, glass, fibers, or other materials.
- Work in Progress (WIP)
Goods under production are termed as work in progress or work in process. For the furniture business, the tables or chairs before polish or paint would be WIP.
- Maintenance, Repair, and Operating Supplies (MRO)
Items used in the production process, but not part of the finished product are MRO of the business.
The adhesives, calibrators, packing material, or gloves used in the production phase of a table are the Maintenance, Repair, and Operating Supplies
- Finished Goods
The end product when it is ready to be sold is called a finished good.
For example, polished and packaged table or chair is the finished product in a furniture business.
Key Differences Between Inventory and Stock
As previously mentioned, stock refers to products that a company sells under its name while inventory includes all the assets of a company.
Stock determines the revenue of a business. The more it is sold, the higher a company’s profit.
Apart from these major differences, some other things that set inventory and stock apart are mentioned below.
- Value
Inventory value is determined by a company’s investments.
However, stock value is evaluated on the basis of the current selling price of the products.
- Context
Inventory is usually used for accounting purposes. It determines the raw material at hand, goods used in work-in-progress, and the assets of the company.
Whereas stock is used to determine the profit value of a company.
- Frequency
Inventory is valued quarterly, annually, or monthly in some cases. It is valued less frequently than stocks.
On the other hand, stock is valued regularly. It is usually counted on a daily basis to analyze business progress.
- Profit Value
Inventory includes all the assets of a company that are used to produce goods as well as the end products themselves. Therefore, overall value of inventory is higher but it doesn’t contribute that much to the profit.
Stock determines the profit value of a business. More stock sales mean higher revenue for a business.
- Considerations
Inventory items are used in the production phase therefore they need to be replenished quite often. They are needed to make end products. Hence, the right amount of inventory is needed for normal business operations.
Stock only needs to be replenished if the sales of a particular product are high.
- Maintenance
Inventory maintenance is done on a quarterly or annual basis.
Stock, on the other hand, needs to be maintained on a daily basis as they are the measure of a business’s success.
Can Inventory Management Software Manage Both Inventory and Stock?
Inventory management systems can be used to manage any amount of inventory or stock. These tools are quite robust and keep track of everything; from raw material in inventory to an end product in the stock.
Although dedicated stock management software and inventory management software are available in the market, inventory management systems are capable of managing every item in the inventory.
They monitor the number of raw materials as well as business sales. Therefore, it’s a good idea to integrate an inventory management system to manage both inventory and business stock.
