What’s the Difference Between Stock and Inventory?
Stock suggests the items that are sold as part of the daily operation of business while inventory includes the products, materials and goods used to manufacture or produce them. Inventory takes into account every business asset used to manufacture goods which determines the selling price of the stock item. The stock determines the revenue amount generated by your business. The more stock you sell, the higher your revenues.
You can think of stock as the finished product your business is trying to sell. It can also contain raw materials if you also sell them to your customers. For example, a cell phone will be the finished product but cell phone parts, that are also sold to customers, are still part of stock items.
Inventory includes the finished products of your business, as well as the raw materials and the machinery used to produce them. In other words, every single item that is used in the production, as well as the finished product, is considered inventory.
When it comes to accounting, stock numbers are tracked daily while inventory tracking is typically done on an annual basis.
4 Types of Inventory
Raw materials are inventory items used to create finished products during the manufacturing process. One company might consider an inventory item raw materials while others view it as finished goods. When a company produces components for machinery, those inventory items are considered finished goods or stock. But, if a manufacturer purchases these parts for use in the manufacturing process, it’s considered raw material and ultimately inventory.
WIP inventory suggests items that are in the process of becoming finished goods and can include raw materials, components going through the manufacturing process as well as inventory items that are waiting for quality control and final inspection.
Finished goods suggest products that are ready for sale to the final customer.
MRO Goods (Maintenance, Repair & Operating Supplies)
This type of inventory suggests all the items needed for operation such as machinery and other equipment as well as the inventory items needed to maintain the infrastructure. MRO inventory is essentially spare parts but may sometimes include raw materials.
What Is Inventory Management?
Inventory management is the primary building block to success and the longevity of big and small businesses. When your inventory levels are accurate and efficiently organized, the rest of your supply-chain management will materialise. Without control systems, you risk a myriad of mistakes like:
- Missing shipments of inventory
- Products out of stock
- Overstocking of inventory items
- Stocking the wrong inventory
These types of mistakes will cost you money in lost sales as well as the labour spent to correct mistakes. You risk human error mistakes if you don’t implement inventory control systems, putting customer loyalty on the line.
What Is an Electronic Stock Control System?
An electronic and cellphone stock control system includes every aspect of managing the inventories of your business such as purchasing, receiving, shipping, warehousing and storage, tracking, reordering and turnover.
In different industries, the actions linked with each area may not be restrained to separate subsystems. However, these tasks need to be performed in a specific order to ensure an efficient electronics and accessories control software. Electronic inventory control systems enable businesses to integrate various subsystem functionalities into one cohesive system.
Different Methods of Stock and Inventory Control
Regular stock reviews are required to establish when new stock needs to be ordered. Business leaders use predetermined figures to order stock or hold off. Due to cost savings, many small businesses function at a minimum stock level — also known as the lowest point before more stock or inventory is ordered.
Fixed Time/Level Reordering
This method of stock and inventory control suggests ordering them either at fixed levels or fixed times. For example, a business might have a standing order of 1000 inventory units every second Monday of the month. This type of stock and inventory control systems work best for businesses with a stable demand or fixed contracts.
JIT (Just in Time)
As one of the most popular inventory systems, this method originated in Japan and suggests ordering inventory or stock only when required to keep liquidity high and costs low. While the increased cash flow is great, it also comes at a cost. The business should be particularly organised when it comes to ordering inventory items at the right time and suppliers need to be very reliable. The risk of running out of stock increases when a big order is placed.
EOQ (Economic Order Quantity)
EOQ is one of the most complicated inventory systems and that requires mathematical formulas to keep inventory and stock at optimal levels. These calculations can be extremely time-consuming and hiring a professional is vital. Another option is to invest in electronic inventory management software that can do EOQ calculations automatically. This stock management method can also be combined with others where required.
If your business works with perishable stock items, this method is particularly useful. The FIFO method ensures that inventory and stock doesn’t pass its sell-by date before use. Stock is classified by its receiving date and stored or moved onto the next production stage before those received at a later date.
This method separates production and inventory control into different batches to reduce the complexity in the production process. It also helps to ensure that short-term targets are reached. Batch control offers a great way to keep costs to a minimum since businesses only need the components and raw materials for each individual batch.
VMI (Vendor-Managed Inventory)
VMI is a newer method of stock and inventory control that highlights the shared risk between the supplier and the buyer. The supplier receives information from the buyer about stock and inventory requirements who is then responsible for maintaining a stock level. This inventory control method decreases the risk of under-stocking as well as the time it spends in the supply chain.
How Can I Prevent My Business From Over or Underspending on Stock?
Use Inventory Management Software
Electronic inventory management software enables you to control every aspect of supplies and stock, integrating processes into a single software package. As your business operates daily, the software can advise you of necessary actions such as placing inventory and stock orders once they reach a specific level. You can then make data-informed decisions about inventory control which will reduce the risk of overstocking.
Define Processes and Stock Types
Carefully defining the types of inventory/stock and the processes involved in the production, are vital to ensure your business maintains fitting levels of stock at all times. It helps you understand where and when in the production process specific stock types are needed so you can maintain stock at optimal levels.
Theft and damage not only impacts stock levels but has a negative effect on your bottom line. Stock and inventory should be kept in a secure area upon delivery with surveillance cameras or similar protection. It’s vital to train staff to follow specific safety procedures to ensure maximum protection of stock should security concerns arise.
It is beneficial to add up sales and update inventory totals at the end of every business day to determine how many of which items were sold. Taking time for inventory tracking and to analyse your sales data will help you manage and order the right inventory.
Use An Inventory Control System That Fits Your Business Model
When it comes to inventory items and stock management, there isn’t a one-size-fits-all solution. Depending on the industry in which it operates and the type of company, various methods are commonly used. Take time to find an inventory control system that works best for you.
Develop an Efficient Electronic Stock Control System
With proper electronics and cellphone stock control software in place, you can do everything from predicting future sales and reducing your overall costs to keeping your business profitable and preparing it for the unexpected. Let Netgen help turn your business into the success you envision it to be. Get in touch for a free quote today.