The real cost of your inventory
Holding too much inventory has some potentially disastrous financial consequences. After all, money tied up in inventory cannot be used anywhere else. Furthermore, capital tied up in items that you can no longer sell (e.g. obsolete stock) may be lost forever. However, when you consider that there are further inventory costs associated with holding inventory as well as financing the investment in inventory in the first place, determining the true cost of your inventory can be a real challenge.
Inventory costs can be defined as the costs your business incurs as a result of holding inventory. These costs can include anything from purchasing the inventory in the first place to processing, distributing and holding the stock. Furthermore, although often overlooked, inventory costs also concern any costs that come as a consequence of shrinkage. While an unavoidable reality if you want to keep your customers happy, there are a number of steps you can take to identify, allocate and minimise inventory costs.
How can you minimise your inventory costs
Understanding the composition of costs is about more than simply being able to calculate margins. Supply chain teams need complete visibility over all of the costs associated with holding stock in order to make informed inventory decisions. Equally, it is vital that businesses understand these costs in order to identify opportunities to improve as well as to calculate what benefit can be gained through optimising the inventory.
From the cost of capital to the cost of obsolescence, in our latest whitepaper we explore what factors you need to consider in order to calculate the true costs of your inventory. This whitepaper will not only help you determine your current inventory position from a financial perspective but also what return you can expect from reducing inventory levels!
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