What is the name of raw materials used in the production of goods and services?

For most manufacturers, semi-finished goods play an essential role in the production process. Semi-finished goods such as materials and components are the key building blocks of products as varied as automobiles, pizza and bedding. Strategic use of semi-finished goods can help companies streamline production processes, save time and accelerate time to market.

What Are Semi-Finished Goods?

Semi-finished goods (SFGs) — also known as sub-assemblies — are goods that have already undergone some processing and are then used as inventory inputs in the manufacture of finished goods, which are products ready for sale to consumers. Also known as intermediate goods, semi-finished goods include a wide variety of components, materials and other items. For example, semi-finished goods ranging from steel sheets and electronic components to complete engines may be used in the car manufacturing process.

Key Takeaways

• Semi-finished goods are goods that have undergone some processing and are used as inputs in the production of finished goods.
• Examples of semi-finished goods include materials such as steel and sugar, as well as components ranging from computer chips to car engines.
• Companies may buy semi-finished goods from other companies, make their own or produce semi-finished goods for sale to other companies.
• Calculations of gross domestic product (GDP) do not include semi-finished goods because their value is already included in the value of finished products.

Semi-Finished Goods Explained

Semi-finished products include any partially finished goods that are incorporated into finished goods sold to consumers or businesses. Semi-finished goods are essential for most production processes — in fact, a manufacturing process may consist largely of assembling a set of semi-finished goods. By using production-ready components and materials, manufacturers can build products more quickly and accelerate time to market.

Some semi-finished goods, such as electronic components, may be incorporated into finished products without further transformation. Others, like steel sheets, may be altered during the production process until they are no longer recognizable.

In general, there are three ways that semi-finished goods are made and used:

1. A manufacturer buys semi-finished goods from suppliers.
2. A manufacturer makes semi-finished goods and uses them in its own products. For example, a chocolate maker might own the cocoa-bean processor that produces ingredients for its chocolate bars.
3. Manufacturers make semi-finished goods that are sold to other companies.

Semi-Finished Goods and Production

Raw materials may go through several processing stages, each of which adds value and results in a semi-finished product. For example, yarn and fabric are both semi-finished goods. Yarn comes from a raw material such as wool, polyester or cotton. After the raw material is spun into yarn, its value increases. The yarn may also be processed into fabric. The fabric and yarn can then be used to make clothing, upholstery or other home goods.

Note that in some cases a product could be categorized as either a finished good or a semi-finished good, depending on how it’s used. For example, a supplier might sell fabric directly to consumers as a finished good. It could also sell the same fabric to clothing manufacturers that use it to make clothes, in which case it would be considered a semi-finished good.

Economists do not count semi-finished goods in a country’s gross domestic product (GDP) so as to avoid double-counting the contribution of these goods to the economy. GDP is a key measure of productivity that’s calculated by totaling all goods and services that a country or region produces. Semi-finished goods are not included in GDP. GDP measures the market value of all final goods and services produced by a country. The value of finished goods includes the value of the semi-finished goods used in their manufacture. Therefore, counting the value of semi-finished goods as well as the total value of finished products would double-count the value of the semi-finished goods, resulting in an incorrect estimate of GDP.

You could take two large suitcases filled with clothes for every weather condition. You might think you’re smart because you’re prepared for anything, but in reality, it’ll weigh you down and cost more to transport.  

Contrast this to a single backpack:  

• You save money on baggage fees  
• You can run for a bus at short notice  
• It makes it easier to hitchhike   

Bringing two suitcases seems less risky, but the movement is slower and is less effective overall.  

The second option is the road to success:   

• You haven’t put all your eggs into one basket 
• You can change direction at a moment’s notice  
• Take a route that makes the most sense without disrupting plans   

This type of thinking goes for keeping extra raw material inventory lying around.  

Broadly speaking, as a manufacturer, you handle four different types of inventories:  

The average time a business focuses on each type of inventory changes at different stages in the business’s life.  

During the startup stage, companies tend to focus more on finished products. This makes a lot of sense, as getting products to customers is the top priority. You have to make a name for yourself, and your product is everything.  

As the business grows, the focus might be on manufacturing and small business inventory management efficiency. What was once barely a concern for the business owner becomes the number one thing on their mind.  

It seems like inventory management is taking over their life.  

The business owner might spend more time managing their raw material stock with little to show. More raw materials pile up, seemingly enough to last for unforeseen occurrences. This increases your inventory expenditure on your balance sheet.  

Not to mention the number of hours lost tracking it all.  

Before you know it, you are spending more than ever to sell a single unit of product. Your business is bigger. It may even be more profitable. But what are you doing it all for if your overheads are destroying a higher percentage of your income?  

What is the raw materials used in production?

Which type of industry uses raw materials to produce goods and services?

What are the raw materials and their uses?

What refers to the raw materials used in production as well as the goods produced that are available for sale?