INVENTORY COST
Classification of Inventory on the basis of nature of material
- MRO - maintenance ,repair
- Work- In -process inventory
- Finished goods in inventory
INVENTORY COST ELEMENT
INVENTORY PROCUREMENT COST
- Cost of order processing from the purchase indents stage to accounts and finally to the
delivery of item to the factory . Cost involves the stationary , employee and the time spent on
these activities.
- Cost of transmission of orders from purchase deptt to suppliers , fax , telephones cost of
postages etc with advent of internet and erp there has been considerable drop in these costs .
- Cost of transportation including freight , octroi , transit insurance and protective packaging for
the same
- Cost of invoice ,book entries and processing payments
- Cost of Inspection , handling , receiving
INVENTORY CARRYING COST
- Space rent for the storage of goods
- Cost of Working Capital locked in the inventory
- Cost of insurance of goods
- Cost of spoilage of goods in storage , breakages in handling
- Cost of deterioration and obsolesence of goods due to passes of time
STOCK OUT COST
Stock out cost can vary from negligible to total production loss . Hence inventories have to scrutinised
in regular basis and with tools like ABC OR VED analysis
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Cost reduction strategies - procurement
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