Hi there, and welcome to inefficiency number two of our five-part series. In this episode, we will look at carrying costs.
Now, obviously, you have to keep some inventory on-site, but storing more than necessary could cost more than you think.
Inventory carrying cost can be up to about twenty-five percent of the overall value of the inventory, but this can be much higher without proper management.
Let’s look at the four main carrying costs: capital, storage space, inventory services and risks.
Capital cost represents the cost of money and the lost investment opportunity. Storage space includes the lease, utilities, insurance and taxes. Inventory services may include taxes, physical labor and software, and depreciation, obsolescence and shrinkage are potential risks. Also consider the amount of inventory space that could be allocated to other areas of production.
Carrying excess inventory can quickly drive all of these costs up, but finding ways to reduce how much you store on hand will help improve your budget.
Come back Falcon Fastening’s blog soon to watch the third supply inefficiency, buying direct.
Thanks for watching.