Inventory Cost

Inventory cost is the total cost of holding goods, expressed as a percentage of the inventory value. This includes the cost of:

  • capital,
  • warehousing,
  • taxes,
  • insurance,
  • depreciation,
  • obsolescence.

Inventory cost is an important consideration in logistics, as it can have a major impact on a company’s bottom line. By reducing inventory costs, companies can improve their profitability and competitiveness.

There are several ways to reduce inventory cost:

  • One way is to streamline the inventory management process. This can be done by using technology to track inventory levels and automate reordering.
  • Another way to reduce inventory cost is to reduce lead times. This can be done by working closely with suppliers to shorten the time between an order being placed and receiving.
  • Finally, companies can reduce inventory cost by reducing waste. This can be done by implementing Just-In-Time (JIT) manufacturing or other lean manufacturing techniques.

Reducing inventory cost is a challenge for many companies, but it is possible to achieve significant savings if it is approached in a systematic and strategic manner. By taking steps to streamline the inventory management process, reduce lead times, and reduce waste, companies can significantly lower their inventory costs. This will improve their bottom line and increase their competitiveness.

Related Links

Definition of the inventory costs – Inventory Optimization Software – Lokad
Inventory Carrying Costs – Components & Considerations

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