So I had to review a few of these concepts, and felt like there may need to be some clearer distinction made between the abstractions that we use to create associations between multiple items in inventory - sometimes with selections available to the customer, sometimes bundling multiple items into a single SKU, either because something's been manufactured or discounted at a bundled price, or simply for marketing purposes and how we'd like to group associated items on our product pages..

In this regard, I think there's a lot of room for confusion and that it may be helpful to others if I share my personal understanding of these concepts, and invite others to enhance or correct as necessary.

Hopefully this will help provide a better understanding as to how and when these features can or should be used in order to achieve both better inventory management and product presentation within your store.

As such, the following are how I've come to understand define the following concepts that can easily be confused.  These are - Item Variants, Composite Items, and Configurable Items / Add Ons (the last is not currently a Commerce feature, but one that I would propose should be, and is functionality within several other ecommerce systems.  More on that below...):

A Variant generally should be in item that comes prepackaged from a supplier, usually with its own dedicated UPC or SKUs. It's a variant because it may be conceptually grouped along-side with other very similar items with variations that pivot on one or more specific attributes. Some of these attributes might be size, color, flavor, etc. Each one of these attributes will multiply the number of SKUs by the number of new options within that attribute. (It's worth mentioning that you don't need to keep all of possible the variants SKUs if, for example, all colors are not being ordered for all sizes of a particular item - in which case the automatically generated SKUs can simply be deleted).

The inventory for any variant is increased when it's received and decreased when it's sold.  

Presentation at the point of sale is such that all variants are presented on a single product page.  Selecting the appropriate attribute options on a product page allows the customer to ultimately arrive at the specific product variant they wish to order.  

It's important to emphasize that selecting a variant on the product page is a "deductive" process during the point of sale, whereby each attribute option that is selected further hones in and reduces the number of remaining variants until the last attribute is selected.  This makes it much easier for your customer to quickly and specifically identify one variant among perhaps hundreds of other similar items without having to wade through pages of items.

A Composite Item is a pre-bundled "composite" of multiple SKUs. (Note the word "PRE-bundled"). This feature is really meant for those who bring in various pieces, parts, and components (which may or may not also be sold individually), but are assembled into AND presented as a single bigger product - hense the name "Composite Item".

As such, from a presentation standpoint, the Composite Item is a single SKU that you sell to your customer.  Behind the scenes, a composite item comprises of the pieces and parts initially received and inventoried as other SKUs.  The magic here is in the bundling.  Once bundled into a composite item, the inventory quantities are automatically reallocated reducing the on-hand counts all of those parts that are used to manufacture the Composite Items.

Composite Items are quite useful to you if you are a manufacturer in order to help you maintain and track your on-hand parts, make adjustments, and see if you're running short on this part or that for one product or another.

Generally, Composite Items are planned for in advance, and are usually bundled, allocated, and typically prepackaged well before the sale.

Composite Items are meant to define in your inventory a finished product from the parts that it's made from. This provides a means for automatic parts allocation for the purpose of assembling components into finished goods with the needed visibility and reporting that you otherwise would have to deal with manually in other painstaking ways (e.g. maintaining multiple inventories, one for manufacturing, and one for sales, etc.).

As such, the Composite Items feature allow manufacturers to have both the parts and the finished products coexist happily in one place and allocate the former into the latter as needed. It's inclusion into Inventory (and now into Commerce) has likely been a big deal for many, and a pretty significant accomplishment on Zoho's part.  Considering that that EDI can also available be integrated with Zoho Inventory, this is a pretty serious level of functionality for manufacturers that would otherwise be difficult to rival at Zoho's price point.

  

There is however a third concept however, which I believe is very much desired, but is not yet included as part of Commerce, and oddly I think it's the arguably a feature that would probably be fairly east for the Commerce group to implement, being that it shouldn't be contingent on the changes to the Inventory Schema shared by the other Zoho apps.

I also think that it's something that is one of the more desired features, but not identified as such because it gets confused for and/or grouped in with certain other features when it's really quite a separate feature all together, for example... by that I mean that Variants and Composite Items are often being mistaken by users for what should really be considered as an entirely different and separate feature - that being the "Configurable Item with Add Ons".

The feature I'm describing here is used and implemented frequently on websites selling computers.  You sell the "bare-bones" system, which might be the enclosure and the motherboard, then you have a dropdown box to select what CPU, another dropdown box allows you to select the RAM, and another for the power supply.

It's important to understand that this is not a deductive selection (like it is with variants) in that each of the selections under each of these drop-downs is not honing down to a singular SKU.  Nor is it a Composite Item in which a single SKU is the composite of many that were preallocated into a final product.

Rather, this is an additive process at the point of sale, enabling the customer to configure their own system by selecting from multiple SKUs that are simply associated to a base "Configurable Item".  It's a function of presentation, and requires no preallocation of inventory.

It's important to understand that the base Configurable Item can be sold by itself, but is presented with optional "Add Ons".  When Add Ons are selected, pressing the "Add to Cart" button ads the base Configurable Item, along with the SKUs (and relevant Quantities, which should also be optionally presentable) of the other associated "Add On" items.

So in this way, there is never any sort of preallocation required for Add Ons within a Configurable Item.  It's only the relationship between the Configurable Item and its available Add Ons that needs to be established (e.g. perhaps within the Configurable Item's product page editor) that determines that such "Add Ons" be presented within the product page. 

Since this is only a function of presentation, the SKUs for the individual items (the base Configurable Item plus the Add On items) are still maintained within the cart, with no need to package them for the purpose of how they're seen from the perspective of the customer.

One other important distinction in this regard might be with respect to discounting.  Composite Items (not Configurable Items) can also be presented with package discounts.  Applying package discounts to Configurable Items might not be so straight forward if desired.

Anyhow, hopefully this will provide better understanding for those who are trying to strategize how to setup their inventory, and also serve as a proposed implementation that Zoho might consider in order to add in some sort of "Configurable Item / Add Ons" capability within the product page templates and be manageable on the back end via the product page editor.

This can theoretically be accomplished using custom fields and some modification to the Face product template files, but it would be nice if this functionality was part of Commerce itself without needing to hack it in.