Industrial Goods

Industrial goods are those items sold for business purposes to companies involved in manufacturing, construction, extraction, power generation, etc. Typically, these goods are high-investment ones and have higher durability. Thus, they are also referred to as capital goods or business goods.

Industrial goods play an essential role in the economy. They generally form a part of a business assets. Apart from domestic transactions, they are also often imported and exported. Business goods can be sold as raw materials for further processing or as support goods that aid production.

• Industrial goods meaning refer to purchases made by manufacturing, processing, and service-oriented companies to support their operations.
• It can be categorized into two groups: those that directly undergo conversion in the production process and those that provide supplementary support to the production process.
• Industrial goods and services are vital in an economy's secondary and tertiary sectors, significantly contributing to the GDP and facilitating international trade.
• The consumer goods sector caters to consumers who frequently purchase smaller quantities at lower prices.

Industrial goods companies often engage in business deals with other companies. They buy from other businesses or sell to other businesses. It is called a B2B or business-to-business transaction. The examples include a construction company buying cement in bulk at 10% less than the market price.

While these transactions are less frequent in number, they make a substantial contribution to the nation's gross domestic product (GDP). Further, one can see international transactions in this regard too. Second-hand capital goods are often bought and sold globally.

G2B or government-to-business transactions involve businesses procuring certain commodities from the government. Companies can participate in government auctions that sell items once used in government facilities or unclaimed trade items—for example, boats and marine equipment, ex-army vehicles, metals, etc.

The marketing of industrial goods is noteworthy. Industrial buyers are often professionals with more than sufficient experience in dealing with business purchases. They will be aware of the market price and the actual value of a good. They need to look for a product and buy it. They negotiate and get discounts.

The reputation of sellers is another essential factor. The types of industrial goods are typically high-investment items, so buyers often prefer reputable sellers such as JCB and MAN. Additionally, the distribution channel for these goods generally is shorter.

Usually, the only parties involved would be the representatives of the two companies. Sometimes, there is an agent. But this differs from the consumer goods distribution channel, which comprises suppliers, manufacturers, wholesalers, retailers, distributors, consumers, and many intermediaries.

This classification encompasses goods directly utilized in production or as accessories. Now, let us explore the broader categorization.

1. Raw materials – These goods are directly consumed in production. They can be catalysts that enhance a process or materials that can be turned into finished products. Raw materials are mostly found under the current assets in a balance sheet—for example, minerals, iron ore, oil, cement, natural gas, etc. Water is a raw material often used in manufacturing but not bought or sold, so it is not an appropriate example.
2. Capital goods – Capital goods are heavy machinery or large equipment that help convert raw material into a finished product. They can also be used in packaging, labeling, etc. As the term suggests, these are capital-intensive. Capital goods usually come under the fixed assets in a balance sheet and are subject to depreciation. Examples include cranes, forklifts, scutching machines, motor graders, and other appliances. Used capital goods are often imported.
3. Tools and equipment – This refers to the smaller accessories used in processing and manufacturing. They might require higher investments, too, but not as much as capital goods. Further, they need not always occupy a position on the balance sheet. For instance, computers come under fixed assets and are subject to depreciation. But screws, pallets, hammers, etc., will not come under the balance sheet. Other examples include conveyor belts, printers, telephones, etc.
4. Supplies – Supplies are those industrial goods that can be used for maintenance and day-to-day operations. One of the best examples of supplies is stationery items like pens, ink, papers, etc. These can also be sold as consumer goods, but the difference is that businesses buy in large quantities and require these purchases regularly, thus making them industrial. In business accounting, they are considered expenses.
5. Services – Industrial goods and services, like appliance installation, machinery repair, maintenance, etc., are primarily offered together. Some standalone services include accounting, consulting, legal services, advertising, etc.

Consider the examples given below to understand industrial goods.

Example #1

Suppose Dan is a freight forwarder from Country X. He owns a public warehouse in South Port, which provides storage space, inventory management, and shipping services to his clients. Recently, Dan decided to expand his market and offer cold storage services to attract new customers.

Consequently, he placed an order for the following industrial equipment with Cold-Stone Reefer Co.:

1. Long Term Freezer
2. Blast Freezer
3. Freezer Spacer Insertion
4. Freezer Spacers
5. Washing Stations
6. Pallet Washers
7. Pallet Dryers

The purchase cost for Dan was a total of $5500, but due to his bulk purchase, he received a discount of 10%.

Example #2

Let us consider the example of one of the most crucial industrial goods – heavy machinery used in manufacturing. In December 2022, the manufacturing industry in the United States experienced a second consecutive month of decline. This decline was primarily attributed to inflation, higher interest rates, bloated inventories, and a shift in consumer spending from goods to services.

Heavy machinery is a vital industrial good, often used in manufacturing processes across various sectors. However, as experts predict further declines in the industrial goods sector, it is anticipated that the demand for heavy machinery will also decrease. It demonstrates how fluctuations in industrial activity can directly impact the demand for specific industrial goods, like heavy machinery.

Industrial and consumer goods occupy distinct niches in the market. Understanding their differences is essential for businesses to navigate the complexities of production, distribution, and consumer demand.

This article has been a guide to what Is Industrial Goods. We explain it with its examples, differences with consumer goods, & classification. You may also find some useful articles here -

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