Inventory vs Supplies: What Are the Differences?

Did you know that small businesses make up 99% of all US businesses? Most people start a business to free themselves from the daily grind of working for someone else. But this is no easy task.

Managing a business comes with its own set of challenges. And two of the most critical factors of store management are supplies and inventory.

These essential items represent many materials that businesses use day-to-day. And while both are important, they each serve their own purpose in a business. Both affect profits, daily operations, and even accounting.

Today we’ll compare inventory vs supplies and help you understand their roles and key differences. We’ll teach you how to identify supplies and inventory, provide inventory tips, and more. So keep reading!

Supplies Guide: What Are Supplies?

Supplies are the items that a business uses every day. They help the company and its employees perform daily operations and increase profits.

Supplies cost every company money to use. These items are purchased as assets that the business uses throughout the year. Ultimately, supplies are the fuel that drives daily operations.

Supplies Examples

The type of supplies will vary by business. Many companies need a core list of supplies to keep daily operations running smoothly.

Physical businesses will need different supplies than eCommerce stores. But supplies are not considered business equipment. Here are the most common supplies that businesses need.

Office Items

Most offices use a basic set of supplies to support the day’s activities. Office supplies help organize work, create reports, and run the office environment efficiently.

Common office supplies include:

• Scissors
• Pens
• Tape
• Paper
• Folders

Shipping Items

Businesses that ship goods or materials to customers and clients need shipping items to complete daily operations. Shipping supplies are a necessity for many businesses.

Common shipping supplies include:

• Boxes
• Bubble wrap
• Tape
• Shipping labels
• Envelopes

Cleaning Items

Cleaning supplies serve to keep businesses tidy and organized throughout daily operations. They help create a safe and effective workspace for employees to work.

Common cleaning supplies include:

• Trash bags
• Trash bins
• Toiletries
• Mops
• Cleaners

Managing Supply Items

Supply management can get tricky. Luckily, there are often fewer supply items to track than inventory items. Supply management does not affect the customer. Instead, tracking supply items helps keep the company’s operations running properly.

Many small businesses store supplies on-site, but larger companies may need a warehouse. Like inventory management, the business will need to keep track of supply item usage, current stock levels, and when to restock supplies.

Inventory Guide: What Is Inventory?

Inventory items are the essential goods that businesses either buy or create. The company sells the items to other businesses or consumers to make a profit. Inventory can include materials, goods, or other commodities that create profit.

For example, if a bakery sold muffins to consumers, the muffins would be considered inventory. If flour and eggs go into making the muffins, these ingredients would also be considered inventory items. Any item that helps create products falls under inventory.

Inventory Examples

There are a few different categories of inventory items. The most common are raw materials, work-in-progress goods, and finished goods.

Each type of inventory item serves a key role in a company’s goods production and day-to-day operations.

Raw Materials

Raw material items go into the creation of the finished product. They are essential inventory items in the overall manufacturing process of goods. For example, herbs purchased by a kitchen to season a steak dinner would be considered raw materials.

The steak would also be a raw material used to create the steak dinner. So, raw materials are the inventory items that help make the final product.

Work-in-Progress Goods

Work-in-progress goods refer to company items that are not yet completed for sale. WIP goods utilize raw materials to form this category of inventory items. A WIP is created by combining raw materials with labor.

So while herbs and meat used to create a steak dinner are raw materials, they would become WIP goods during the cooking process.

Finished Goods

Finished goods are the company’s final product that’s ready to sell. A business that manufactures its own products will use the previous two categories to form its finished goods.

A business that purchases finished goods to sell will not need the previous two inventory categories. For example, a plated steak dinner would be a finished good.

Managing Inventory Items

Properly managing inventory items will ensure that a company’s operations run efficiently. To manage inventory items, a company needs to consider various processes. Inventory lists/records need to be tracked, and stocked products need monitoring.

How a company manages its inventory will also depend on the size of the business. Larger companies will manage their inventory items in warehouses. Smaller businesses use dedicated spaces in-store.

Simple inventory tracking software can also help make the process easier. Small businesses will primarily benefit from using this method.

Inventory vs Supplies: Accounting

In accounting, supplies and inventory function a bit differently. Supplies are considered assets up until the company uses the items. This allows businesses to list unused supplies as assets.

Company accountants can also list the value of used supplies in the “supplies expense” category on financial statements.

Company accountants can also list inventory items as assets. This is because inventory items are intended for sale. The accountant can list the value of inventory items and base it on the purchase price.

After selling, the cost of the item can be removed from the inventory category and placed in “cost of goods sold” and “product revenue.”

What’s the Difference Between Inventory and Supplies?

There are a few core differences between inventory vs supplies. To put it simply, supplies focus on maintaining the daily operations of a business. And inventory supports the overall manufacturing of a company’s goods.

Knowing the difference between the two essential item groups will ensure that your business runs correctly.

Looking for more articles like this? Visit our business section for more content!