In the world of sales, the backbone of success lies in getting those finished goods out there. It’s like a synchronized dance among marketing, logistics, and supply chain teams, ensuring the product reaches every corner.
When marketing announces a new product, it’s like the starting gun for everyone else to kick into gear, ensuring that the product is everywhere, from bustling cities to remote towns. After all, no one wants to walk into a store and find themselves not being cared for, right?
The supply chain is the final stretch of the marathon, starting from raw materials and ending with happy customers holding your product. How smoothly that journey goes can seriously impact your bottom line and how satisfied your customers are.
So, in this blog, we’re jumping headfirst into the ocean of finished goods and their role in the supply chain. We’ll discuss the challenges, and a few tricks of the trade, and learn how to run it all like a well-oiled machine.
Let’s get started!
Meaning of Finished Goods
Once products are finished, they’re ready for sale by retailers to customers, having undergone all necessary manufacturing or assembly. In car manufacturing, raw materials like rubber, steel, and engines combine to create a complete car, ready for market. Essentially, anything sold as is falls under this category.
In accounting, finished goods inventory represents the last stage of inventory classification. Products move from raw materials to work-in-progress before becoming finished goods during production. Defining this inventory is crucial for managing warehouses effectively, impacting production rates and profitability.
Components of Finished Goods in the Supply Chain
The key steps and processes involved in transforming raw materials into finish products and getting them to consumers or retailers are encompassed within the major components of the completed goods supply chain. These components include:
1. Identifying Gross Profit
Inventory stands as a cornerstone asset for manufacturing units, holding significant weight on the balance sheet as a primary driver of profit. By accurately assessing inventory, businesses gain crucial insights into their gross profit margins.
This understanding forms the bedrock for informed decisions regarding operational and financial budgets, shedding light on short-term asset performance and forthcoming profit generation.
2. Waste Reduction
Precision in managing finished good inventory is pivotal for orchestrating an efficient supply chain journey. Through meticulous data management, businesses ascertain optimal inventory thresholds, fostering long-term cost savings and resource optimization.
Leveraging this data empowers proactive adjustments, enabling businesses to gauge production capacity, fine-tune safety stock levels, and curtail excess warehouse stock. This streamlined approach not only minimizes storage requirements but also mitigates expenses associated with idle inventory.
3. Meeting Customer Expectations
As the final checkpoint in the production pipeline, finished goods inventory plays a pivotal role in fulfilling last-mile delivery commitments. Evolving customer expectations demand swift and seamless order fulfilment, placing a heightened emphasis on inventory readiness.
By maintaining visibility into finished good inventory levels, businesses ensure the timely availability of products, thereby meeting customer expectations and safeguarding against potential disappointments.
4. Streamlining Inventory Management Processes
Supply chain dynamics often entail unexpected surges in demand, necessitating agile inventory management strategies. Acquiring insights into available finished goods inventory empowers businesses to preemptively navigate cost implications and operational disruptions stemming from demand spikes.
Moreover, a deep dive into finished goods inventory unveils invaluable insights into production workflows, facilitating targeted optimization efforts. Analyzing historical labour, direct, and manufacturing costs helps businesses enhance production efficiency, adopt automation, and improve inventory management practices.
3 Steps to Calculate Finished Goods in Inventory
To calculate finished goods inventory, you need:
- Beginning Finished Goods Inventory: What you had at the month’s start.
- Cost of Goods Manufactured (COGM): Total expenses for production.
- Cost of Goods Sold (COGS): Total expenses for sold goods.
Formula: Finished Goods Inventory = Beginning Inventory + COGM – COGS
Simply put, start with last month’s finished goods inventory. Then, add production costs and subtract sold goods expenses.
How to Keep Finished Goods in the Inventory?
Inventorying finished goods involves meticulously inspecting and determining the quantity and condition of items in stock. The following steps are commonly undertaken in this process:
1. Prepare for the Inventory
Establish the timing and duration of the inventory and inform relevant staff members to ensure adequate preparation.
2. Define the Scope of the Inventory
Clearly outline the areas, types of items, or materials to be examined during the inventory.
3. Prepare Documentation and Tools
Gather necessary documents such as inventory lists and utilize tools like computers, counting machines, and barcode scanners to facilitate the process.
4. Numbering and Identification
Ensure accurate numbering and identification of each item to facilitate tracking during the inventory.
5. Conduct the Inventory
Thoroughly inspect each item, recording relevant information such as quantity, condition, and identification details.
6. Address Discrepancies
Investigate any disparities between actual and recorded quantities, following organizational protocols to rectify the discrepancies.
7. Recheck and Finalize
Review recorded information for accuracy and completeness, finalizing necessary documents in compliance with regulations.
8. Report the Results
Generate a comprehensive report detailing inventory findings, including any discrepancies, and propose measures for improvement.
9. Reconcile Data
Verify inventory results against the data in the management system, correcting any discrepancies as needed.
10. Evaluate and Improve
Assess the effectiveness of the inventory process and suggest enhancements for future inventories, incorporating lessons learned for continuous improvement.
Executing the inventorying of finished goods requires precision and attention to detail to optimize warehouse management and minimize discrepancies or losses in product quantity.
FAQs: Role of Finished Goods in Supply Chain
What comes before finished goods?
Before finished goods, raw materials and work-in-progress items are typically processed in the production cycle to transform them into finish products ready for sale or distribution.
What are the two types of finished goods?
The two types are:
- Consumer goods: Products intended for direct consumption by end-users.
- Capital goods: Products used by businesses to produce other goods or provide services.
Are finished goods assets or liabilities?
These are assets on a company’s balance sheet until sold, at which point they contribute to revenue. Before the sale, they represent inventory assets.
Are finished goods financially helpful?
It contribute to revenue generation when sold, enhancing financial performance. However, excessive inventory levels can lead to storage costs and potential obsolescence, impacting profitability.
Conclusion
In conclusion, the journey of finished goods through the supply chain is pivotal for business success. From raw materials to the hands of satisfied customers, each step is crucial. Efficient inventory management, accurate tracking, and meeting customer expectations are paramount.
Qodenext, with its innovative solutions, can streamline this process, ensuring seamless operations and enhanced profitability. By optimizing inventory levels and minimizing waste, businesses can maximize their bottom line while delivering exceptional value to customers.
