Inventory costs

Inventory costs
See also
Types of logistics costs Direct material Cost structure International logistics Distribution cost Logistics chain IT systems in production management Finished goods inventory SCM system

Stocks are an integral part of business processes – are present in each of the phases of the business, and by streams of inflow and outflow are subject to renewal. Knowledge of relevant costs that accompany items allows you to optimize inventory control processes and improvement of them. The value of the stocks include:

• cost of creating the inventory
• cost of maintaining the inventory

Costs of creating the inventory include the cost of buying physical inventory and the cost of information processes and related specifically to the purchase of materials. Include procurement costs, non finished production, storage of finished goods in warehouses, sales and goods in trade magazines.

From the point of view of the volatility of inventory costs are different in nature. There are costs of purchase, formed in direct proportion to the size of the purchase, especially expressed in physical units. The costs of information processes and the costs of the purchasing department activities are relatively constant.

The costs of maintaining the inventory constitute a significant part of logistics costs of the enterprise. Consist of the following components:

• Cost of capital,
• Cost of storage,
• Operating costs of inventory,
• Cost of risk.

See also:

• Types of logistics costs
• Two-tier inventory control
• Inventory management techniques

References

• Ryzin, G. V., & Mahajan, S. (1999). On the relationship between inventory costs and variety benefits in retail assortments. Management Science, 45(11), 1496-1509.
• Tersine, R. J. (1994). Principles of inventory and materials management.