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What are
intermediate goods
? An introductory guide
Most products we buy are a single item &#; a smartphone, a loaf of bread, or a new car.
But manufacturers require diverse materials to create the final consumer-ready product &#; and these materials are intermediate goods, also known as intermediate products.
Learn more about intermediate products&#; role in creating finished goods and how they impact the gross domestic product (GDP).
What is an intermediate good?
Complex products rarely go from raw materials to finished goods. Instead, they&#;re manufactured in stages. Intermediate goods are the products used to produce other goods, whether it&#;s the flour in a loaf of bread or the battery in a smartphone.
Manufacturers have several options for sourcing intermediate goods. One is to purchase them outright, which requires a significant upfront investment. They can also rely on consigned inventory to manage the supply and availability of necessary components.
To consign inventory, manufacturers enter agreements with suppliers and store the supplier&#;s stock in their warehouse or facility. The manufacturers don&#;t actually purchase the goods until they use them, meaning they can return any unused product to the supplier. It lets them access these materials whenever they need without the large upfront costs, streamlining their production and inventory management processes.
Intermediate versus final goods
Intermediate goods and final goods represent different stages in the production process. As mentioned, intermediate materials are the components used to make other products. They aren&#;t usually sold directly to consumers but are essential for creating final goods.
Final goods, also known as consumer goods, are ready for purchase or consumption. They&#;re the end result of the production process.
Categories of intermediate goods
Three primary types of intermediate goods support different types of operations:
In-house
A company produces these goods for its own use in creating another product. For example, a company might make its own paint to use in toy production instead of buying it elsewhere.
Typically, manufacturers rely on in-house and externally produced intermediate goods to obtain the inputs they need to create finished products.
B2B finished
In business-to-business (B2B) finished good transactions, one company sells a product to another business for use in a final product. Items in this category stand out &#; some B2B finished goods are independent products but are usually an input for more complex items.
For example, tire manufacturers sell tires to car manufacturers for the automakers to complete the vehicle assembly process &#; but the tire company could also sell them directly to consumers as a finished product.
B2B intermediate
B2B intermediate goods are those sold during the production workflow that require further processing before becoming part of the final product. For instance, a steel manufacturer sells steel to a car manufacturer, who then uses it to create care bodies. The steel isn&#;t a finished product, but it moves between businesses before creating a final product.
5 examples of intermediate goods
Here are some widely used intermediate goods and a few that act as final products, including both raw and manufactured items:
1. Sugar
Sugar is a staple in kitchens and food manufacturing processes. It&#;s a functional ingredient in a wide range of products. Commercially, it&#;s crucial for making everything from pastries and chocolates to soft drinks and canned goods. Its versatility and manufacturing-friendly properties make it a go-to ingredient in both sweet and savory dishes.
But, like many other baking supplies, sugar is a dual-purpose item. Manufacturers use it as an input to create finished goods, but it&#;s also sold directly to consumers for personal consumption and use.
2. Paint
Paint contributes both to a product&#;s aesthetic value and to protecting and preserving various products. In the automotive sector, paint not only gives vehicles their vibrant colors but also provides a protective layer against dirt, corrosion, and wear.
Paint is applied to countless other products, like toys, buildings, and furniture in construction and manufacturing to serve both functional and decorative purposes. And, like sugar, you can buy paint as a consumer good.
3. Car parts
Automakers must orchestrate the combination of numerous complex parts to assemble a fully operational vehicle. Whether it&#;s the battery providing the power, the tires gripping the road, or the engine driving the vehicle forward, each part has an indispensable role to play.
These components are manufactured separately, often by different companies. Vehicle manufacturers then source the necessary parts to facilitate final assembly. The sheer number of parts necessary to create a vehicle makes the automotive industry&#;s supply chain one of the most complex in the world.
Although some car parts double as finished goods &#; like tires, wheels, windshield wipers, and oil filters &#; other components, such as semiconductors or the steel used to create vehicle bodies, are just intermediate goods.
4. Gold, silver, and other metals
Gold&#;s conductivity makes it valuable for electronics, while silver&#;s reflective and antibacterial properties lend it to use in medical devices and mirrors. Other metals, like copper and aluminum, are fundamental in the construction, automotive, and packaging industries.
Unlike sugar and paint, most metals are rarely a finished product &#; they&#;re almost always used as intermediate goods in the manufacturing workflow. That said, precious metals like gold, silver, and platinum have a high intrinsic value, which makes stocking up on these raw materials less risky for manufacturers.
5. Glass
Glass is everywhere. It&#;s found in the screens of our smartphones and televisions, the bottles containing our beverages, and the clear planes that fill our windows. Glass is a critical intermediate good in both everyday objects and sophisticated technologies. It&#;s a common B2B intermediate since most consumers would buy a final output involving glass, not the glass itself.
Tracking and managing intermediate goods
With competitive price and timely delivery, hait sincerely hope to be your supplier and partner.
From an operational standpoint, optimizing the stock of your intermediate products is just as important as the way you manage your completed goods.
For example, if you produce toys but understock on the materials necessary to create a final good, you&#;ll experience production delays and may encounter stock outs. But overstocking on intermediate goods increases your carrying costs and could result in dead stock.
The best way to achieve and maintain balance in your inventory is to invest in cloud-based inventory management software. A leading software solution is your single source of truth, providing real-time transparency into stock levels, demand trends, and other variables that impact your inventory.
With tools like Fishbowl, you can align your stock management strategy with customer preferences, ensuring you have enough intermediate goods to maintain steady production levels and avoid stock outs.
Intermediate goods and gross domestic product (GDP)
Economists don&#;t consider intermediate goods part of gross domestic product (GDP) &#; it only measures the market value of the services and final goods an economy generates.
There are two reasons why intermediate goods aren&#;t included in GDP calculations.
First, they aren&#;t final goods since they aren&#;t usually sold to consumers. If a product can act as both a final and an intermediate good, like tires or sugar, the direct to consumer sales count as final goods.
Second, adding intermediate goods to GDP calculations would result in double-counting those items. Here&#;s how: Before adding tires to a new SUV, a vehicle has a market value of $39,000, and the tires have a value of $1,000. After adding the tires, the SUV&#;s market value would increase to $40,000. If economists factored the intermediate goods into their GDP calculations, they would have a total value of $41,000, when the cumulative market of the SUV with tires is only $40,000.
Optimize your intermediate goods inventory with Fishbowl
Intermediate goods add layers of complexity to inventory control. To manage the flow of critical components and raw materials, you need a dynamic inventory management solution like Fishbowl.
With Fishbowl, you&#;ll enjoy unprecedented visibility into your stock levels and achieve newfound success in managing intermediate goods. The platform also integrates with QuickBooks, offering end-to-end transparency in bookkeeping, expense tracking, invoicing, and financial reporting.
Unlock the power of cloud-based inventory tracking with Fishbowl. Book your demo today to learn more about how our platform takes the guesswork out of tracking intermediate goods.
Industry Benchmark: Part 4 Pharmaceutical Intermediates
Pharmaceutical buyers have much lower budgets when it comes to buying intermediates than excipients or outsourced services, but their needs remain highly diverse in terms of type of product and chemistry. However basic this segment of the industry may seem at first glance, buyers&#; needs are driven first and last by quality. These were some of the main insights of the Nice Insight Pharmaceutical & Chemical Intermediates Survey.1
As with the other Nice Insight surveys in this series, the respondents, who totaled 545, had a strong global geographic spread with 38% in Asia, 37% in Europe and 25% in North America.
They also came from companies of all sizes. Large pharma companies &#; those with sales of >$5 billion/year &#; were the largest single group, accounting for 36% of the total, followed by medium-sized ($500 million-$5 billion/year, 31%), small ($100-500 million/year, 28%) and emerging pharma (<$100 million/year, 5%). However, there were large differences between the sizes of the companies on a regional basis, as a much higher proportion were small or medium-sized in Asia than in North America or Europe.
Small-molecule generics formed the most important molecules by type procured, with 72% of buyer companies making these; 40% made small-molecule new chemical entities and 32% made over-the-counter drugs. Their areas of focus were very diverse, even at the broadest level of therapy category. Between 43% and 22% were active in (in descending order of importance) infectious diseases, metabolic diseases, oncology, endocrine diseases, central nervous system diseases, cardiovascular diseases and respiratory diseases.
The vast majority of the respondents were at an executive level, including 35% in North America, 62% in Europe and 45% in Asia. Overall, 88% of respondents said that their company already engages with fine chemicals and intermediates companies. The rest are likely to within the next 24 months. Their expenditure is generally in the region of $1 million to $10 million/year, with only 14% spending more than this and 3% spending less. Over three-quarters expect this expenditure to rise in the next five years.
This expectation cuts across all of the basic categories of intermediates, at least in the short term. In the next two years, 68% of respondents who buy custom intermediates expect to increase their usage and procurement of them, while 27% of them expect it to stay the same and only 5% expect it to fall. In the drug and chemical intermediates categories, which are more widely sourced at present than custom intermediates, 56% and 57% project an increase in their buying in that time frame, respectively.
Companies&#; need for intermediates are typically highest in the earliest stages of development, though the tapering-off effect in the later stages is not even. About half of those surveyed need them at clinical and bench scale and again at pilot scale, while the proportion falls to nearer one-quarter at kilo lab scale and again at commercial scale.
The types of chemicals that intermediate buyers acquire or plan to acquire for their immediate needs are extremely diverse. Acids (cited by 34% of respondents) head the list, ahead of alcohols and glycols (both 30%), amines (28%) and peroxides (27%), though nine other broad categories are being acquired by at least 16% of those surveyed. Geographically, the rankings varied little, though North American companies are more frequent and heavy buyers of the top categories of product.
In every single case, significantly more buyers expect their purchasing to increase than to decrease. This was most marked in the case of olefins and chiral intermediates, where 66% and 57% said that they would increase their purchasing over the next two years. The gulf was smallest with azides, but here too 49% expect an increase, 42% expect this to stay the same and only 10% anticipate a decrease.
Not surprisingly, there was also considerable diversity when it comes to the reactions used to transform intermediates into final API states. Protection/deprotection was the most widely used, but only by 37%. Other widely used reactions were led by hydrogenation (30%), nitration (29%), coupling, methylation/demethylation and enzymatic reactions (all 27%). The main technologies used to this end were crystallization (used by 57%), high temperature (250°C+, 51%), high pressure (37%) and cryogenic chemistry (&#;80°C, 34%).
There was a more clear-cut answer when it came to the types of specialized service respondents have acquired or plan to acquire. Protein chemistry is in the sights of 54%, ahead of green chemistry (48%), which is a looser term that could be taken to refer to many different techniques.
Most strikingly, perhaps, combinatorial chemistry &#; which has earned a poor reputation for discovering vastly more molecules without this having much of an effect on the number of final products emerging from the pipeline &#; is still in the plans of 40% of respondents, ahead of the &#;sexier&#; areas of fluorine, chiral and hazardous chemistry.
While companies&#; methods of finding outsourcing partners are diverse, it is striking that Internet methods were the least common, with web searches and online directories being used by only 15% and 27%, respectively. Personal contact of one sort or another was considerably more common, with industry research being used by 53% and previous experience by 48%. Referrals/colleagues and trade shows/events each scored 40%: ChemOutsourcing was the single most popular event in this respect, with 48% of those surveyed attending it, though over 30% of respondents attended each of seven others, all in North America or Europe.
Survey respondents were clear on their top priorities as buyers. Quality standards came first, with reliability, minimizing risks, regulatory track records, and affordability rounding out the top five. This fits well with the results of similar questions in other Nice Insight surveys of buyers&#; attitudes to working with contract research organizations and contract development and manufacturing organizations.2,3
Product or service quality is similarly the single factor likely to cause pharma companies dissatisfaction when working with fine chemicals and intermediates companies. Cost overruns came second, suggesting that cost becomes more of a factor only when there is a &#;sting in the tail.&#; The other major sources of problems are, in descending order of importance, security and confidentiality, product or service availability, and communication and transparency.
Conceivably, pharma companies are seeing suppliers of fine chemicals and intermediates increasingly as partners rather than simple suppliers of products. The main reason cited for partnering includes being part of a strategic plan. The others, in descending order, are to find a shorter synthetic route to an API, reducing costs, a lack of in-house capabilities, and access to specialized technologies.
No single attribute stood out for pharma companies when evaluating fine chemicals and intermediates companies. In fact, the proportion of respondents rating 17 of 18 listed factors as important only varied between 61% and 66%, with the ability to resolve technical hurdles, quality compliance, experience (operational, methodological or therapeutic) and compliance audits in the top four. This shows that each trait is important; intermediate companies are expected to demonstrate strength across a host of service sectors to be considered.
The only factor that did stand out from the trend did so in a negative sense, albeit only slightly: 55% saw geographic convenience as important. In other words, being in the same region or country as the customer is a definite bonus, but only if all the other factors are right first. This is an increasingly sophisticated industry sector, as well as a thoroughly globalized one, and the rewards will go to those who offer high-quality products and services.
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