Finished products constitute the final stage in a three-stage production process. They are included in the most easily tradable, i.e. the most liquid category of inventories. In the operational process, they are converted into trade receivables at the time of sale. Finished products are subject to valuation at historical cost, taking into account a portion of total production costs settled to them. It is essential that the trade in them is harmonized with the market demand existing in a given period. Too long stay of finished products in the warehouse is a disturbing sign of deterioration in their marketability. It may contribute to a decrease in their utility or commercial value, deterioration of quality or cause a weakness in the market. The sale of such products is very difficult and requires the sales department to increase the effort or, as a last resort, to reduce the price of the product.
The product is also called products, goods, assortments as well as articles. In a word, everything:
- what has been produced
- what will appear on the market in order to gain consumer attention
- what can be used by the consumer, consumed,
- what will satisfy consumer needs at various levels.
Product life cycle
Each product / product has its own time, from the moment it is put on the market until its withdrawal, and it varies depending on the type of product. As of today, one can observe a rapid shortening of the product life cycle due to the dynamic acceleration of technical progress and very high competition from manufacturers. This trend is most noticeable on the example of electronic devices (computers, mobile phones - their life cycle can be estimated for a period of about two years). On the other hand, the life cycle of other products, e.g. food products due to preservative applications, can last even hundreds of years. Forecasts showing life expectancy of the product are basic data during the preparation of the plan and in defining the strategies of enterprises.
Phases related to the time the product is on the market For each phase an analysis of the unit prices and unit costs is carried out. The costs that are incurred during its formation are high and are constantly growing. However, profits will appear only when the product is already on sale.
- the first phase - the introduction of a new product to the market - at this time there is a low sales volume, and high unit costs, distribution and advertising. However, the price can not be excessive, because it should encourage its first buyers. During this phase, the manufacturer gets the first information on how the product behaves during operation. It is a signal for him to introduce corrections and improvements, but hence he is exposed to higher costs of warranty repairs, which are related to the unfinished product structure and manufacturing technology.
- second phase - growth - it happens when the product sales increase. At this point, you can raise the price and the entrepreneur will start to make profits.
- phase three - maturity - competition starts to grow, thanks to which customers have the choice between products with similar properties. You can talk about the saturation of the market. To achieve the highest possible profit, producers undertake promotional activities and implement new distribution channels.
- phase four - decline - when new products with a more modern and improved form appear on the sales market - the sales volume, its price and profits decrease despite the fact that unit costs remain the same - you can see the phase of decline. An entrepreneur may introduce a modification in a given product to extend its life cycle on the market, but it is usually best to introduce a new improved product so that the old model can be withdrawn after some time from the market.
Value of the product for the customer
Functions can be determined by the purpose of a given product. The product usually has the following functions:
- subordinate function
An example is an office lamp:
- basic function - working surface lighting
- subordinate function - embellishment of the room
- unnecessary function - heating the surface of the illuminated desk
Criteria for product design
The product should be:
- functional - it should meet the designated tasks for which it was created
- attractive - it should look like the client's preferences
- easy to use
The quality of the project is responsible for the quality of the product - it should include customer / user requirements. The planning of the product includes in the era of decisions that concern the introduction of new products on the market, as well as changes in the products already manufactured and the withdrawal from the market of obsolete products. Planning is designed to ensure that the company will deliver the expected product to the marketplace by purchasers. The producer must also assess the demand for the product. When it is not there, it must evoke its actions if it wants to introduce an innovative product. Cooperation with the client is also very important to get to know their requirements and preferences.
You can get to know the customer's requirements with:
- questionnaires (by e-mail, by phone, by post)
- conducting a direct interview during customer service.
Product production program
This concept takes into account the type of assortment as well as the number of services, products manufactured, in a given time period. Its size usually refers to a year and is expressed using natural measures (kilograms, meters, plays, etc.). The production program can be determined based on forecasts of demand or orders that the company will receive for a given product. It is recommended that a given program be created with great accuracy - up to a week for the next three months. Therefore, all supply, production and assembly plans are based on this program. This is the main reason why it must be reliably done and be approximated to the actual demand. As of today, the computer programs in which such production programs are PMN / ERP (planning of material needs / enterprise resource planning).
Finished products can be financed with working capital or, in the case of sufficient liquidity, with bank debt.
Characteristics of finished products:
- their purpose is to sell on the market
- having enough of them is a guarantee of avoiding shortages
- n the case of spontaneous purchases, they increase sales.
Examples of Finished product
- Automobiles: Automobiles are the most common example of finished products. An automobile is a complex system of parts that are assembled and tested to produce a reliable, durable, and safe means of transportation. Automobiles are usually sold to consumers through dealerships.
- Clothing: Clothing is a popular finished product. It is a type of textile product that is made from fabric and other materials. Clothing is typically produced in factories and sold in stores or online. It is created for the purpose of providing protection, comfort, and style to the wearer.
- Electronics: Electronics are another type of finished product. These are items such as televisions, phones, computers, and other electronic devices that are built for use by consumers. Electronics are typically manufactured in factories, tested for quality, and then sold in stores or online.
- Toys: Toys are another example of finished products. These are items such as dolls, action figures, board games, and other items that are designed for children to play with. Toys are typically produced in factories and then sold in stores or online.
Advantages of Finished product
A finished product has many advantages, such as:
- Increased liquidity as it is easier to trade than raw materials or components.
- Reduced inventory costs as it can be sold directly to customers.
- Improved marketability as it is already tailored to suit customer needs and preferences.
- Reduced wastage due to the elimination of the intermediate stages in the production process.
- Improved customer satisfaction as the product is already ready to use and meets customer expectations.
- Increased profits due to the cost savings associated with the production of finished goods.
Limitations of Finished product
- Finished products are subject to market risks as they are affected by the demand and supply in the market.
- If the demand for a particular product drops, it can result in the decrease in its price or it may become difficult to sell.
- Finished products may be subject to deterioration in quality if they are stored for a long time.
- If the quality of the product is poor, it may not be able to fetch the desired price in the market.
- Finished products may also be affected by the competitors’ prices and features of the product.
- It is essential to monitor the competition in order to make sure that the prices of the finished products are in line with the market.
- The cost of production should also be kept in mind while determining the prices of the finished products.
- If the cost of production is too high, it may be difficult to sell the finished products at a profit.
One other approach related to finished products is to ensure the effective management of inventory levels. This involves:
- Monitoring the stock levels of finished products, across warehouses and stores, to ensure that the demand is always satisfied.
- Setting up a re-order system to ensure that the stock is replenished when needed.
- Regularly reviewing the products to ensure that the market demand for them is still present.
- Utilizing promotional activities to help create demand.
In summary, effective management of inventory levels requires monitoring the stock levels of finished products, setting up a re-order system, regularly reviewing the products, and utilizing promotional activities to help create demand.
- Lewandrowski, J. K., Wohlgenant, M. K., & Grennes, T. J. (1994). Finished product inventories and price expectations in the softwood lumber industry. American Journal of Agricultural Economics, 76(1), 83-93.
- Zwietering, M. H., Jacxsens, L., Membré, J. M., Nauta, M., & Peterz, M. (2016). Relevance of microbial finished product testing in food safety management. Food Control, 60, 31-43.
- Lee, H. L., & Tang, C. S. (1997). Modelling the costs and benefits of delayed product differentiation. Management science, 43(1), 40-53.