What Is Inventoriable Cost?

Inventory costs are all expenses incurred throughout the inventory process. Including: (1) Order costs. (2) Purchasing costs, that is, the expenses incurred to purchase or produce the product, are related to the purchase or production volume. (3) Inventory holding costs, that is, the costs incurred to maintain inventory, usually refers to the costs incurred during the period from the storage to the storage of the goods. (4) Out-of-stock costs. (5) Logistics cost, that is, the cost required for the goods to be transported from the supplier to the warehouse, and from the warehouse to the user, can also be combined into (1) and (2) above. ^[1]

Inventory costs

Right!

Inventory costs are all expenses incurred throughout the inventory process. Including: (1) Order costs. (2) Purchasing costs, that is, the expenses incurred to purchase or produce the product, are related to the purchase or production volume. (3) Inventory holding costs, that is, the costs incurred to maintain inventory, usually refers to the costs incurred during the period from the storage to the storage of the goods. (4) Out-of-stock costs. (5) Logistics cost, that is, the cost required for the goods to be transported from the supplier to the warehouse, and from the warehouse to the user, can also be combined into (1) and (2) above. ^[1]

The composition of inventory costs can generally be divided into the following three main parts:

In the business process of the enterprise, it is absolutely impossible to reduce the cost of inventory by a certain department alone. It is a collaborative process, and the key is to reduce the inventory cycle and inventory quantity. If you want to stand alone in the sense of a warehouse, you can probably have the following methods:

1. Use of three-dimensional space

2.Convert production inventory to handover

3. Limited supply of purchased items

4.Smooth layout

5.Add / reduce necessary / unnecessary equipment and facilities

6.Introduction of erp

Importance of inventory cost

One of the important contents of enterprise management is to consider how to reduce costs for enterprises. The sales department as the profit center of the company plays an important role in the company's open source, and the logistics department as the cost of the company is also important to reduce the company's expenditure. Good logistics management can save the company's cost by increasing the number of inventory turnover, speeding up capital turnover, reducing operating costs, improving customer service and other methods, and increasing profits through throttling.

Generally speaking, the management content of enterprise logistics includes the following aspects: customer service, inventory control, procurement management, warehousing management and transportation control. More and more enterprises have begun to attach importance to and emphasize the integrated logistics management method, that is, to properly formulate and adjust the performance of each department to achieve overall performance standards through the operation of various departments under the direct jurisdiction of the government.

Specific measures for inventory costs

The control of inventory cost can be carried out from the following aspects:

A) Correctly determine inventory materials:

For a general enterprise, it operates from dozens of products to tens of thousands, and in most cases, it is not necessary or possible to prepare all products for inventory. Therefore, the first task of the company is to correctly determine the inventory and non-inventory materials.

Generally speaking, the enterprise's inventory management mode can be divided into pull (reactive) and push (planned), the former is based on demand (production or customer orders), inventory management mode that only produces or purchases when needed JIT and kanban management system belong to this way.

B) Reduce unavailable inventory:

Although many times inventory must exist, not all inventory can play its role at any time to meet the needs of production or delivery, or that these inventory are not available for a certain period of time, an important aspect of reducing inventory costs It's about minimizing the amount of these unavailable inventory. For an enterprise, in-transit inventory, silt (slow-sale) inventory, reserved inventory (deliverable orders cannot be delivered for other reasons), work-in-progress, or untested products are all unavailable inventory. One of the goals of inventory management is to increase the ratio of available inventory to total inventory.

In practice, unavailable inventory is usually reduced by:

1. In-transit inventory. Shorten delivery and transportation time: The transportation time from the supplier to the enterprise should be as short as possible. First, you need to choose a suitable transportation method according to the characteristics of the product (price, volume weight, etc.). The management of this time will be This greatly affects the company's in-transit inventory. Generally speaking, products with a high price and a small volume and weight are preferred to be shipped by air. However, the appropriate transportation method is selected by carefully comparing the impact of shortened transportation time on inventory and even inventory costs and transportation costs, otherwise the purpose of overall optimization will not be achieved. Choosing the right delivery and payment method is also an important aspect of reducing inventory costs, especially in international procurement. It takes a long time and different places for the goods to leave the supplier's factory and actually arrive at the company's warehouse. In this process, the later the ownership of the goods is handed over to the company and the longer the payment period, the more the company needs The smaller the risks and costs assumed. Choosing the right factory location, the distance a company leaves its suppliers or customers will affect its inventory level. The shorter the distance, the shorter the delivery time, and the corresponding the amount of inventory can be reduced. That's why GM's suppliers will move their factories to Shanghai as GM sets up factories in Shanghai. The purpose is to speed up supply time and reduce inventory.

2. Reserve inventory. Control the batch delivery of orders: For a batch delivery order, the inventory level can be greatly reduced for the customer, but it is not a small pressure for the supplier, so the enterprise must strictly control such orders In order to provide customers with the communication between the entire sales department, the financial department and the customer when it is really needed, we can eliminate the reserved inventory caused by payment, customer project extension and other reasons. 3. Stagnant inventory. Reduce sluggish inventory through appropriate business policies.

By optimizing the management of the production line, formulating a reasonable production cycle, shortening the transportation route of the goods in the special product process to reduce the inventory of work in progress, and reducing the inventory of goods to be inspected by accelerating product testing.