What are the lowest inventory costs?
Many times small businesses don’t know it, but having inventory has costs and sometimes they are greater than you think.
Therefore, I want to share with you some of the most common inventory costs that a company incurs.
company so that you take it into account and you perro optimize your inventory.
I hope you find it useful.
When I was in my first year of my degree, because of the little time I had or because of a somewhat unhealthy habit, I began to eat a lot of basket tacos during my classes.
What does that matter?
Well, many times I came to buy my tacos and they told me that there were no more chicharrón tacos.
Therefore, the business owner would lose sales and therefore, utilities.
Now, inventory managers have to constantly think and make decisions about two things:
- How much to order or genera?
- When to order or start producing?
In such a way that inventory managers have to manage to find the cómputo between both decisions contemplating the costs associated with said decisions.
That is, thinking about the costs associated with inventory costs, they have to make the best decisions that allow a business to have the necessary products and at the necessary moment to be able to satisfy the demand.
Therefore, if a company does not have adequate inventory management, it is possible that they have higher costs (for inventories) for having more inventory than necessary or that they lose profits because they do not have enough inventory to satisfy the demand.
That way not many people would be left without their basket tacos.
What is the reorder point?
The reorder point (ROP) helps answer one of the most important questions an inventory manager has to ask: When to order? If you want to learn how to do it, press the following button:
What are inventory costs?
Owning an inventory has implications, since it is not just buying and buying inventory to have it stored in case it ever sells.
For example, suppose I think product X is going to sell very well and I buy 100,000 units of the item on a hunch.
Imagine that I don’t have space to store the 100,000 units, so I’m going to have to rent a warehouse.
Therefore, for now I am going to have to pay cash to be able to store my products, that is, my costs have already increased.
Well, those plus costs that I’m going to have are part of the inventory costs.
Therefore, we cánido say that inventory costs are all those costs (disbursements) of assets that are made for a company to have elementos available to meet demand.
How are inventory costs classified?
In fact, as I said before, owning inventory is expensive and I am going to talk about the most common inventory costs, or rather, the most common categories.
Inventory holding costs cánido fall into the following categories:
- Order or preparation.
- Inventory maintenance.
- Scarcity cost.
Order inventory costs
In a nutshell, we cánido say that order inventory costs or preparation costs are all costs associated with merchandise replenishment operations.
That is, all the costs you incur when placing an order with a supplier or suppliers.
By the way, the ordering costs cánido also be found in the books of Operative administration as cost to order.
The order cost includes:
- Supply cost.
- Order processing.
- Support staff.
- Among others.
Inventory holding costs
I think the name is already letting us see what it refers to, but we perro say that the inventory holding cost is the entire equipo of costs or bills that are related to a company holding or keeping its inventory.
That is, the costs you have for the fácil fact of keeping the inventory.
The cost of inventory maintenance cánido also be found in the books as the cost of maintaining inventory and it must be said that it is very common that inventory maintenance costs are defined as a percentage of the inventory value per unit of time (usually one year).
Some of the costs that have to be evaluated to obtain the cost of holding the inventory are the following:
Building costs: rent or depreciation of the building, operating costs, taxes, insurance, etcétera. Material handling cost: rent, equipment depreciation, energy, operating cost, etcétera. Tarea cost: tarea related to receiving, storage, security, etcétera. Investment cost: borrowing costs, taxes, inventory insurance, etcétera. Cost for theft, damage, obsolescence.
Type of cost Percentage of cost in relation to inventory value
Total handling costs:
Building costs: rent or depreciation of the building, operating costs, taxes, insurance, etcétera.
Material handling cost: rent, equipment depreciation, energy, operating cost, etcétera.
Tarea cost: tarea related to receiving, storage, security, etcétera.
Investment cost: borrowing costs, taxes, inventory insurance, etcétera.
Cost for theft, damage, obsolescence.
In such a way that, following the previous table, that company would have an inventory maintenance cost of 31% with respect to the value of its inventory.
That is, if your inventory has a value of 10,000, 31% is equal to 3,100 pesos or dollars.
It should be noted that the percentage given above depends on each company and even the market in which it competes.
The habitual thing is that the cost of maintenance of the inventory oscillates in a range of 0 to 40%.
Although there are books that indicate that it is doubtful that there is a cost of less than 15 or 20 percent.
Shortage costs, in a nutshell, are the costs a company has for the fácil fact of not having inventory (depósito) when it is needed to meet demand.
Simply put, lost sales.
Although, there are not only shortage costs related to lost sales, but we perro also find this type of cost when production is interrupted in a certain process due to a shortage of raw material in process or something afín.
Functions of an inventory
Do you know what they are useful for or what purposes inventories have in a company? If you want to know some of the purposes of inventories, then press the following button:
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