Most businesses keep a combination of assets, supplies, and traditional inventory on hand. These products have different uses, are purchased for various reasons, and appear on different sides of a company’s balance sheet. In this article, we’ll help distinguish supplies from inventory—two necessary but very different categories of products your business keeps on its shelves.
What’s the difference between inventory and supplies?
Supplies and inventory are not interchangeable terms. Supplies are items your business relies on to keep everyday operations running. Supplies don’t directly “appear” in the goods or services your customers purchase, but these supplies allow your business to remain open and package and ship inventory to customers. Inventory, on the other hand, refers to the raw materials, works-in-process, and finished goods inventory your business sells (or will eventually sell) to customers.
What is inventory?
Any product your business buys to manufacture or sell directly to customers is classified as inventory. Whether you purchase wholesale inventory from a supplier and resell it at a markup to customers or use raw materials to manufacture finished goods, these products are considered inventory.
Related: What are the four types of inventory?
Inventory example
If your business manufactures candles, the wax, wicks, colorants, and fragrances required are all considered inventory. If those candles are poured into a glass canister and labeled artfully, the items required to do that are also considered inventory. As a general rule, any item that is directly used to manufacture the finished product is considered inventory.
Keep in mind that if a business purchases candles wholesale and sells them directly to customers at a markup, those candles are also considered inventory.
What are supplies?
The everyday products your company relies on the support standard operations are considered supplies. While supply lists vary from business to business, supplies usually include items like:
- Paper goods
- Envelopes and stamps
- Ink and toner
- Boxes and packing supplies
Supplies example
Thinking back to the candle example, remember that only products used to produce a candle are considered true inventory. For manufacturers, this could be a long list of raw materials. For retailers, this would only be the finished candle itself.
Either way, the products used to package and ship these candles are considered supplies, not inventory.
Are inventory and supplies managed the same way?
In general, many businesses utilize the same inventory management system to track inventory and supplies. After all, both types of stock must be managed carefully. Your business needs to forecast demand for inventory and supplies—both are needed to keep your business productive and profitable.
Still, how you forecast demand and practice inventory control for supplies and inventory may vary. For example, your businesses may estimate demand and order raw materials conservatively if you stock costly raw materials or purchase inventory prone to expiration or obsolescence. On the other hand, your business may take advantage of bulk discounts on certain supplies that do not expire and will certainly be used in the future.
For best results, implement an inventory management system that’s flexible and scalable enough to track both inventory and supplies. By following one standard operating procedure for inventory management, your business can create and uphold consistent protocols for auditing, tracking, ordering, and restocking all products.
The best inventory management systems will help you (and your accountant) track and distinguish assets, inventory, and supplies without creating extra work for the rest of your team.
Accounting for inventory vs. supplies
When tracking all the products your business owns, it’s important to differentiate supplies vs. inventory. This is especially true if your business wants to quickly and accurately claim operating supplies as business expenses and true inventory as short-term assets.
Long-term assets, such as equipment and technology, can also be tracked using inventory management software and should be categorized as fixed assets. Remember that regular inventory, or short-term assets, are expected to be used or sold off within a year.
If you use inventory management software to track your inventory and supplies, you can easily classify products as inventory, supplies, or assets. For example, Sortly allows you to categorize your unique items using folders, tags, and custom fields, so you can easily assign the attributes that matter to you. Sortly also features in-depth reporting so you always have data on item cost, location, condition, quantity, and more, right at your fingertips.
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About Sortly
Sortly is a top-rated inventory management software solution designed to help businesses of every shape and size manage their inventory, supplies, and assets. With a customizable, scalable, and easy-to-use interface, an in-app barcode and QR code scanner and generator, and other automation features designed to speed up inventory tracking and auditing, there’s no shortage of ways Sortly can save your business time, money, and stress.
Best of all, Sortly can streamline your inventory and supply tracking strategies—even if your business stores inventory remotely or tracks large quantities of inventory and supplies. With subscriptions and solutions for businesses big and small, there’s no easier way to get organized for good.
Curious whether Sortly’s the right solution for your inventory management? Claim your free, two-week trial today.
