|
John Hardwick
|
|
|
Forum Member
Total Posts: 13
Joined: 09 Jul 07
Location: Reading
Member #7
|
Can people share their approaches to 'cost of holding inventory'? One of the principle benefits of "Lean" is inventory reduction, however accountants tend to treat this purely as a "cash flow" item, ignoring the cost of holding the inventory. We have identified ; costs of multiple movements, obsolescence, incremental storage costs (e.g. off site storage), administration costs. All as 'hidden factory' elements, however we cannot get our accountants to agree a P&L figure to help justify improvements such as automation or batch size reduction. Any thoughts?
John Hardwick
FIOM
|
|
Geoff Relph
|
|
|
Forum Member
Total Posts: 2
Joined: 19 Jul 07
Member #10
|
John, The topic of Cost of inventory in my experience is very emotive. In my IBM days - I worked with Finace for over a year and fail to get any real resolution. The view from the East was nearer 25%, whereas the west tend to only look at the cost of money 5-10%. In the development of any business case Cost of Inventory can bias the decision significantly. In inventory reduction there are two components - 1. the cost of inventory which is an ongoing benefit and 2. the cash released by reducing the inventory which is a one off saving. Agruments rage over whether the Cash release inventory can be included in the business case - it will depend on whether the company is cash rich? That was where the k-curve theroy came from when looking at optimum batch sizes - it does not rely on the Cost of inventory or the cost of ordering only looking at the result of flexing the ratio - this moves it from an EOG single decion to a business decision of Inventory Value versus number of batches processes - or business speed - capability. Which in my mind is much more pragmatic.
Dr Geoff Relph Office 01386 710110 Mobile 0776 476 9166
|
|
chaimlonnie
|
|
|
Forum Member
Total Posts: 1
Joined: 20 Mar 10
Member #143
|
Cost of holding goods in stock. Expressed usually as a percentage of the inventory value and includes cost of capital, warehousing, depreciation, insurance, taxation, obsolescence, and shrinkage.
This post was last edited by chaimlonnie, 20 Mar 2010, 08:24
whiplash claims
|
|
prompt response
|
|
|
Forum Member
Total Posts: 2
Joined: 25 Jan 11
Member #208
|
good question and it depends on varying factors, no one single approach will do. usually it requires a series of cost cutting approaches within the company, especially when it comes to liquidating dead stock. You also need to find ways to both manage this cost, and reduce its impact on cash flow aspects. Accident Management
Accident Management
|
|
Michael01
|
|
|
Forum Member
Total Posts: 1
Joined: 08 Jul 11
Member #239
|
Well it depends on the situation it includes many things in it. Like warehousing cost , inventory cost, depriciation , insurance , taxation and many more things.
Quick cash loans | Online loans
|
|
SFO Asia
|
|
|
Forum Member
Total Posts: 2
Joined: 06 Jan 12
Member #332
|
Its pretty nice to get the idea about the cost of our small things or small needs.Yes in the development process inventory can be too much of important.
Philanthropy AsiaFamily Offices Asia
|
|
ktmiller
|
|
|
Forum Member
Total Posts: 1
Joined: 14 Jan 12
Member #333
|
First of all, it is generally best to think of holding costs in terms of their annual costs. To do this, you will need accurate representations of your annual inventory levels. My previous article, Average Inventory Levels, details this step by step. Personally, I suggest tracking inventory month by month and using these values to find the average holding cost as opposed to taking the year's beginning, the year's end and averaging the two. So now you have your average inventory. This needs to be performed for finished goods, work in process, and raw materials inventory.
local moving companiesSunbrite All Weather Outdoor TV
|
Costs of Inventory holding?
09 Jul 2007, 14:06