In-Transit Inventory: What is it and how is it
In today’s article, I am going to talk about what inventory in transit is, how it is calculated, and what is the elabora to obtain the average annual cost of goods in transit.
I hope you find it useful.
What is inventory in transit?
Imagine that you start a business that sells cakes of all kinds.
To make the cakes you need to buy all the ingredients that each cake needs.
TRUE?
Well, imagine that a couple of trucks arrive with many tourists and you run out of bread.
You will need the bread to be able to create the cakes.
Therefore, you ask one of your workers to go order your bread supplier to bring you the necessary loaves to meet the demand of the day.
Let’s imagine that you place an order for 100 loaves and that the 100 loaves will be delivered to you in 20 minutes.
Well, those 100 loaves that will arrive in 20 minutes are an example of an inventory in transit.
In such a way that we perro say that the inventory in transit perro be seen as the inventory that has been ordered (the order has been placed), but that is still on the way.
Therefore, it is the inventory that has not yet been received.
In other words, It is the inventory that is being moved from suppliers to the customer. That is why it is called inventory or depósito in transit.
Factors that increase depósito in transit
Two factors that genere the depósito in transit to increase in a company are the following:
- Long delivery times.
- Increases in demand.
Elabora for calculating inventory in transit
Calculating inventory in transit is quite fácil, all you have to do is use the following equation:
Now, what the equation tells us is that the depósito in transit cánido be measured or calculated as the average demand during the lead time.
It cánido also be calculated using the average demand for the item per period and the number of periods in the lead time for the item.
worked example
A company (X) makes monthly shipments of hearing aids to a wholesaler.
The lots that company X sends to the wholesaler have an average size of 2000 hearing aids.
Considering that the wholesaler’s average demand is 500 hearing aids per week and the delivery time is three weeks.
What is the wholesaler’s inventory in transit?
It’s very fácil, right? It should be noted that I have taken the average demand for the item per period and the number of periods in the delivery time of the item.
It could also be solved using the 2000, but multiply by 3/4, since three weeks equals 3/4 of a month.
Therefore, the multiplication that has to be done is: (2000)(3/4) = 1500.
You perro solve it in the way that suits you best.
What if the delivery time is 6 weeks?
The results are as follows:
- (500)(6) = 3000
- (2000)(3/2) = 3000
What about 2 weeks?
How to calculate the average annual cost of inventory in transit?
As you may have already noticed, the above equation only takes into account the units that are in motion, but does not consider the cost.
Therefore, below I am going to share the equation that will help you obtain the average annual cost of inventory in transit.
The elabora is the following:
Does inventory in transit protect you from losing potential sales?
Depósito in transit does not help protect you from possible changes in demand (increases) that make you lose sales due to not having products available for sale when they are required.
In order for a company to protect itself against increases in demand, safety inventory is used.
If you do not know what safety inventory is, then I leave you the following backlink:
Perhaps you may also be interested in learning about what cycle inventory is.
Functions of an inventory
Do you know what inventories are used for companies? If I don’t know, don’t worry.
If you are interested, then I leave you the backlink to an article in which I talk about what functions inventories have.
We hope you liked our article In-Transit Inventory: What is it and how is it
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