Inventory Carrying Costs associated with carrying inventory include:
- Interest on Capital Costs – this is the largest component of carrying cost and is associated with money tied up.
- Taxes & Insurance – insurance and taxes has to be paid on the current inventory.
- Obsolescence & Depreciation – inventory obsolescence is a major issue with products with a short shelf life or lose value over time (computer products). Companies involved with products that become obsolete quickly should be focusing on decreasing cycle times.
- Storage – the cost associated with having a facility to hold the inventory.
- Opportunity Cost – what could the capital be used for that is tied up in inventory.
Costs of running out of inventory:
- Loss of customer/sale
- Bad reputation
- Disruption in supply chain
Carrying Cost = (Price per unit * Carrying cost percentage * Order Quantity in Units)/2
Average Inventory = EOQ/2 + safety stock
Demand is known and is constant
No quantity discounts
Reorder point = Estimated Demand * Lead Time
Inventory Management Training.
- Agile Project Management with Kanban.
- How Amazon Receives Your Inventory.
- How Apple’s Inventory Management is So Lean.
- Inventory Management.
- Lean, Kaizen, and Continuous Improvement.
- Lean Manufacturing – Lean Factory Tour.
- Takt Time, Cycle Time, Lead Time.
- What Is Inventory Management?