Inventory Costs
The cost of holding goods in stock. Communicated in words, in general, as a percentage of the inventory value, it let ins capital, depreciation, warehousing, insurance, obsolescence, shrinkage costs and taxation.
Inventory carrying requires Inventory storage and management either using in ho employ facilities or external warehouses owned and managed by third party vendors. In both cases, inventory management and procedure requires extensive employ of Building, IT Software applications Material Handling Equipments and Hardware Equipments link together managed by Operations and Management Staff resources.
Inventory Storage Cost
Inventory storage costs in general, let in Cost of Building Rental and facility maintenance and related costs. IT Hardware and applications, cost of Material Handling Equipments, along with cost of purchase, depreciation or rental or lease as the case may be. Furthermore costs let in operational costs, communication costs, utilities and consumables. In whatever case the cost of human available resources engaged in operations in addition as management.
Cost of Capital
It let in the interest on working capital, costs of investments, taxes on inventory paid, insurance costs and other costs associate with legal financial obligations.
The inventory storage costs in addition as cost of capital is dependent upon and varies with the decision of the management to manage inventory in ho employ or through outsourced vendors and third party service providers.
Current times, the trend is more and more in preference of outsourcing the inventory management to third party service provides. For one thing the organizations find that managing inventory operations expects distinct core competencies, which may not be inline with their business competencies. They would on the contrary outsource to a supplier who has the needful competency than build them in house.
Secondly in case of large-scale warehouse operations, the scale of investments may be too immense in terms of cost of building and material handling equipments etc. Besides the project may span over a longer period of several years, thus blocking capital of the company, which can be utilized into more crucial areas such as R & D, Expansion etc. than by remaining invested into the project.
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