Inventory management: Holding too much inventory has some potentially disastrous financial consequences. Furthermore, capital tied up in items that you can no longer sell (e.g. obsolete stock) may be lost forever. Considering there are further inventory costs associated with holding inventory, determining the true cost of your inventory can be challenging.
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. 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 to make informed inventory management decisions. After all, how can you calculate the economic order quantity without a complete understanding of the cost factors involved. Equally, it’s vital that businesses understand these costs in order to identify opportunities to improve whilst calculating 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 help you determine your current inventory management position from a financial perspective and, what return you can expect from reducing inventory levels!