Intermediate goods are the processed inputs manufacturers use to produce other goods, from the flour in a loaf of bread to the battery in a smartphone. Most of what we buy looks like a single item: a smartphone, a loaf of bread, or a new car. Behind each one sits a chain of materials that had to be sourced, processed, and assembled first. Learn how intermediate products shape the finished goods you sell and why they sit outside the gross domestic product (GDP) figures you read about.
Key takeaways
- Intermediate goods are processed inputs, like sugar, steel, or car parts, that companies use up or build into the products consumers buy.
- Intermediate goods differ from raw materials, which are largely unprocessed, and capital goods, which are equipment that helps produce output without being consumed.
- Economists exclude intermediate goods from GDP to avoid double counting, since their value is already captured in the price of final goods.
- Tracking intermediate goods closely protects margins and prevents stockouts, since understocking stalls production while overstocking ties up cash in dead stock.
What is an intermediate good?
Complex products rarely go from raw materials to finished goods in one step. 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.
How do intermediate goods work?
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, so they can return any unused product to the supplier. This lets them access these materials whenever they need them without the large upfront costs, streamlining their production and inventory management.
What’s the difference between intermediate and final goods?
Intermediate goods and final goods represent different stages in the production process. Intermediate materials are the components used to make other products. They aren’t usually sold directly to consumers, but they’re 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.
3 categories of intermediate goods
Three primary types of intermediate goods support different kinds of operations:
1. 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 both in-house and externally produced intermediate goods to obtain the inputs they need to create finished products.
2. 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 because some B2B finished goods are independent products yet usually act as an input for more complex items. For example, tire manufacturers sell tires to car manufacturers to complete vehicle assembly, but the tire company could also sell those tires directly to consumers as a finished product.
3. 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 car 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, and it’s also sold directly to consumers for personal 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, 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 required to build a vehicle makes the automotive supply chain one of the most complex in the world. Although some car parts double as finished goods, such as tires, wheels, windshield wipers, and oil filters, other components (like semiconductors or the steel used to create vehicle bodies) are only 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 panes 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.
What’s the difference between intermediate goods, raw materials, and capital goods?
Intermediate goods sit between two other categories that are easy to confuse. The difference comes down to how processed an input is and whether production uses it up.
- Raw materials: basic, largely unprocessed inputs like iron ore, raw cotton, or crude oil, listed alongside components in a bill of materials (BOM).
- Intermediate goods: already-processed inputs a company uses up or builds into another product, like steel or flour, tracked as work-in-process (WIP) inventory.
- Capital goods: tools and equipment like machinery, ovens, or forklifts that production relies on repeatedly but doesn’t transform or consume.
A single physical item can shift categories based on its role. Steel is an intermediate good inside a car body, but the press that stamps that steel is a capital good.
How can you track and manage intermediate goods?
From an operational standpoint, optimizing the stock of your intermediate products matters as much as how you manage finished goods. If you produce toys but understock the materials needed to build them, you’ll face production delays and stockouts. Overstock, and you’ll raise carrying costs and risk dead stock.
Input prices swing enough to make this a margin problem, not only a scheduling one. According to the U.S. Bureau of Labor Statistics, prices for unprocessed goods for intermediate demand rose 5.1% in 2024 after falling 18.7% in 2023, per its Producer Price Index report. When component costs move that fast, tracking what you hold and what you pay for it directly protects your margins.
The most reliable way to stay balanced is cloud-based inventory management software. A strong platform becomes your single source of truth, giving real-time visibility into stock levels, demand trends, and the other variables that shape your inventory. With tools like Fishbowl, you can align your stock management strategy with customer demand, holding enough intermediate goods to keep production steady and avoid stockouts.
Consider the KidWind Project, which sells more than 150 products, many of which use interchangeable parts. After moving to Fishbowl, the company cut its on-hand inventory costs from $270,000 to between $80,000 and $100,000. Other manufacturers see similar gains: Extract Production reduced stockouts by 22% after tightening how it tracks components.
Are intermediate goods excluded from the gross domestic product (GDP)?
Economists don’t count intermediate goods as part of gross domestic product (GDP), which measures only the market value of the final goods and services an economy produces. According to the U.S. Bureau of Economic Analysis (BEA), GDP measures the value of final goods and services “without double counting the intermediate goods and services used up to produce them.”
Intermediate goods are excluded for two reasons. First, they aren’t final goods, since they aren’t usually sold to consumers. When a product can act as both, like tires or sugar, only the direct-to-consumer sales count as final goods. Second, adding intermediate goods would double-count them.
Here’s how that happens. Before adding tires to a new SUV, the vehicle has a market value of $39,000 and the tires have a value of $1,000. After the tires go on, the SUV’s market value rises to $40,000. Counting the intermediate goods separately would push the total to $41,000, even though the finished SUV is worth only $40,000.
Intermediate goods also move a large share of global trade. According to the World Trade Organization, intermediate goods have made up about half of world trade excluding fuels for the past decade. That share dipped to 48.5% in the first half of 2023, down from an average of 51.0% over the previous three years.
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 inventory software that shows you exactly what’s on hand, what’s committed, and what’s running low. Fishbowl gives you that visibility across every stage of production, so you can keep intermediate goods moving without tying up cash.
The platform also integrates with QuickBooks, keeping your bookkeeping, expense tracking, invoicing, and financial reporting aligned with what’s happening in your warehouse. See how cloud-based tracking takes the guesswork out of managing intermediate goods.
Frequently asked questions about intermediate goods
What is the difference between intermediate goods and final goods?
Intermediate goods are processed inputs that a company uses up or builds into another product, like the steel in a car body or the flour in bread. Final goods, sometimes called consumer goods, are finished and ready to buy or use. The line depends on the buyer: a bag of sugar is a final good on a grocery shelf and an intermediate good inside a soft-drink plant.
What is the difference between intermediate goods and raw materials?
Raw materials are basic, largely unprocessed inputs that enter production, such as iron ore, raw cotton, or crude oil. Intermediate goods have already been processed at least once before they reach the next stage, like steel, fabric, or refined fuel. Put simply, raw materials are where production starts, and intermediate goods are what those materials become on the way to a finished product.
Is equipment or machinery an intermediate good?
No. Machinery and equipment are capital goods. Production relies on them repeatedly, but they aren’t transformed or consumed the way intermediate goods are. A stamping press that shapes car panels is a capital good, while the steel it shapes is an intermediate good. Some items depend on use: gasoline is an intermediate good when a delivery company burns it to provide a service, and a final good when a driver buys it for personal travel.
Why are intermediate goods excluded from GDP?
To avoid double counting. GDP measures the value of final goods and services, and that price already includes the intermediate goods used to make them. According to the U.S. Bureau of Economic Analysis, counting both the inputs and the finished product would inflate the total beyond what the economy actually produced. If a $1,000 set of tires is already built into a $40,000 car, adding the tires again would overstate output.
How do small manufacturers track intermediate goods across production stages?
Most start with a bill of materials (BOM) that lists every component a product needs, then track those components as work-in-process (WIP) inventory as they move through production. Cloud-based inventory software ties it together, updating stock levels in real time and flagging shortages before they stall a build. Tools like Fishbowl give small manufacturers this visibility across stages, so they hold enough intermediate goods to stay in production without overstocking.