Inventory vs. Stock: Differences that Make the Difference

An important gateway for effective management is understanding the difference between inventory and stock and how to manage these time-consuming tasks efficiently to ensure customer fulfillment. Learn how inventory accuracy, stock control, and inventory optimization contribute to profitability as well as how to improve these pillars of a retail business. 

The Concepts

What is Inventory?

Briefly, inventory is a detailed statement of the elements comprising the assets of a company, although companies typically limit focus on marketable assets. In general, these products include raw materials (production inventory and work-in-progress inventory), and merchandise that will be used to make a finished item or that will be sold directly to the company's end user.


What is Stock?

Stock has to do with all raw material or merchandise—those products that are already in the warehouse ready to be delivered to consumers or fulfill their commercial purpose. It does not include furniture, machinery and other objects of value to the company. It has nothing to do with a stage in the supply chain, as is the case with inventory. It is, basically, what is available to serve customers and put products in their hands.


In summary, stock is the supply of finished goods available for sale, and inventory includes both finished goods and components that create a finished product. In other words, all stock is inventory, but not all inventory is stock.

InventoryStock
Refers to the value of parts and raw material used for manufacturing, work in process goods, and the final product
Helps you arrive at the sale price of the stock
Needs to be updated and managed on a quarterly or yearly basis (end of accounting period)
Term used in both retail and manufacturing
Arrive at the value of inventory using methods, such as FIFO, LIFO, and weighted average methods
Refers to the value of all items that are available and directly sold to the customers
Helps you determine business revenue
Needs to be updated and managed on daily (maybe even multiple times a day)
More common in production and manufacturing
Value of stock is based on the current market value or the price at which goods are sold to the customer

Case in Point: Categorizing Inventory and Stock Items

Here is how some items pertaining to production of a ballpoint pen would be categorized in inventory or stock.

Inventory

  • All raw materials used to create the pen, such as metal and plastic to produce the parts, as well as ink.
  • Finished product parts such as ink tubes, pen exteriors, and open and close pieces (that have completed production and quality checks).
  • Packaging materials to create packages for pens.
  • Materials required for maintenance, repairing, and operating of machines required for pen production.

Stock

BP Pen Company also sells its pens to end users, so it uses ‘stock’ to refer to finished pens that are stored and ready to be sold in packages. These packages are tied to SKU numbers and a barcode that can be scanned to identify and locate finished items for quick fulfillment.  

invetorystock3-01

Major Differences between Inventory and Stock

In the previous example, a group of stocks of different products (raw materials and finished items ready to be delivered to customers) make up inventories. Stock seems to be a more subjective concept, while inventory is more concrete and controlled, normally requiring a physical storage structure. Other major 

differences are:

InventoryStock
Inventory management is much more complex and dynamic, since it has accounting and equity implications
Inventory is closely linked to a company's warehouses operational cycles, in addition to control of existing items, damage and loss, and replacement—in other words, logistics flows
Stock is related to customers and suppliers, involving administrative issues, cash flows, strategies, and marketing and sales management
Stock includes everything that is for sale, while inventory includes all assets comprising the company's assets.

Inventory Management vs. Stock Management

  • Inventory refers to products that are sold as part of the day-to-day operations of the business, including products that are sold, and products and materials that are used to manufacture them. For example, cars, car parts, and accessories are sold as part of a dealer’s normal business practice, but not diagnostic machines that test cars. 
  • Inventory takes into account all the assets used to manufacture the goods to be sold and determines the selling price of the inventory. Stock determines the amount of revenue a company generates. The more stock you sell, the higher your earnings. 
  • For accounting purposes, inventory items are normally counted once a year, but inventory count is tracked daily. This is primarily because inventory is replenished as needed to ensure that the company has enough inventory to keep the door open. For example, you don't need to count the number of tires a dealer has every day, but it's very important to know how many cars are left in the parking lot. Money can flow into your business through the sale of assets, but that money is not considered revenue. Sales include only the sale of the stock itself.