Finished goods
Finished goods are completed products that have passed final inspection and are ready to sell or ship, the last of the three inventory classes after raw materials and work in progress. They carry the highest per-unit value because all material, labor, and overhead are already embedded, which makes excess finished goods the most expensive inventory mistake available.
Examples
Differentiated fill rates: A 1,200-SKU equipment maker sets a 98% fill target on A items and 90% on C items, cutting finished goods from $8.4 million to $6.9 million with no measurable rise in customer complaints.
Obsolescence at launch: A consumer electronics brand is holding 22,000 units of the outgoing model when the new generation ships. The $18-per-unit markdown costs $396,000, roughly what two quarters of tighter end-of-life planning would have avoided.
Postponement: A power supply maker stocks one universal subassembly and adds region-specific cordsets and labels on order. Finished goods SKUs drop from 14 to 3, and total inventory falls 35% at the same delivery lead time.
Definition
Finished goods inventory is a service-level decision wearing an accounting label. Stock more and you fill orders faster and survive demand spikes; every unit also ties up capital, occupies warehouse space, and sits exposed to obsolescence, the one risk that gets worse the closer a product is to done. A raw material can usually be redirected to another product; a finished unit built to last year's spec can only be discounted or scrapped. Safety stock math sets the buffer against demand variability and target fill rate, and inventory management reviews should age finished goods by SKU, because averages hide the dead stock.
Strategy shapes how much finished goods inventory exists at all. Make-to-stock businesses hold it by design; make-to-order holds nearly none; postponement splits the difference by stocking generic subassemblies as work in progress and finishing to order, which cuts SKU-level risk while keeping delivery fast. The right answer depends on product margin, demand volatility, and how gracefully the product ages.
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