The Relationship Between Inventory & Product
A product is a single good developed and marketed to distribution channel members, business buyers or consumers. Inventory is the level of products currently owned and held by a resale business as stated in quantity or dollar value. Managing product inventory is a critical business and merchandising function.
Resale businesses acquire products from manufacturers or distributors and promote them to customers. A product is distinct from a service in that it is a tangible item. Therefore, it takes up space in a distribution center, storage area or on a retail sales floor. The marketability of a product is driven by its product concept, or the perception of value customers get from the strengths of a product relative to close substitutes.
Inventory management is the process of acquiring products, storing them and distributing them, along with the requisite flow of information on this movement. For a distributor, inventory is acquired from a manufacturer, usually stored in a distribution center and pulled from stock for shipments to retailers. Retailers buy inventory from wholesalers and hold it either in warehouses, retail storage areas or on the floor.
One of the closest correlations between the concepts of product and inventory exists in the sales process. When retailers sell products on the floor to customers, the level of inventory merchandised goes down by one. Part of effective visual presentation is maintaining a look of well-stocked, full shelves. Thus, when floor stock falls to a certain point, associates pull more inventory from the back room to fill shelves or displays. When in-store inventory reaches critical levels, alerts are often sent to distributors or retail warehouses to replenish inventory with a fresh shipment of products.
While the terms products and inventory are often used synonymously to indicate quantities of product on hand, one distinction is that inventory is often used more in accounting terms. Inventory balances are stated in dollar amounts on company balance sheets. Products are more often viewed as items for sale, while inventory is used to describe the value of those products in dollars. Turning over inventory quickly helps resellers maintain high product price points and achieve optimal profit margins.