13 May WHAT ARE THE TYPES OF COST THAT MIGHT BE ASSOCIATED WITH YOUR INVENTORY?
You run a hardware store that carries thousands of different items. You have begun to realize that you are spending a great deal of resources (Time, Labor, Space, Money) managing your inventory and decide that it is time to take a closer look at your inventory situation. Please discuss the following items that you feel are important to understanding and managing your inventory situation.
What are the types of cost that might be associated with your inventory?
Carrying Costs
Procurement Costs
Out of stock Costs
Which of the three main Inventory philosophies (Push, Pull, JIT) do you feel would be most beneficial to your situation? (Please explain why)
What are some of the reasons that you would like to build up, or reduce, the inventories in your store? (Please explain why.)
READ AND REPLY BY AGREEING OR DISAGREEING AND WHY?
Reply 1
What are the types of cost that might be associated with your inventory?
1. Carrying Costs
Holding on to excess inventory in anticipation of demand are carrying cost. This also includes insurance, taxes, depreciation, and obsolescence (Carrying Cost of Inventory, 2018). Other costs that could be included in this are facility costs if the building is just for storage.
2. Procurement Costs
Procurement Costs are easily tracked and an easy way to reduce expenses. Buying more of an item to get a discount does not make sense when the demand for the item is very low. Holding on to the extra parts can cost more than the savings from buying discounted parts.
3. Out of stock Costs
Being out of stock can cost a business just as much money as holding onto too much inventory. When consumers regularly run into out of stock products at one location they shop elsewhere. When more is bought the demand for the item may have shifted and now the excess is costing money.
Which of the three main Inventory philosophies (Push, Pull, JIT) do you feel would be most beneficial to your situation? (Please explain why)
For this type of business just in time (JIT) would be the most beneficial. The reason for this is a small amount of safety stock would be kept on hand so as demand fluctuates there is still a supply. Also ordering items as they are sold will reduce the amount of inventory required to keep the buffer from running out. Overall this will reduce the carrying costs and reduce waste that currently exists in the system (Peavler, R., 2018).
What are some of the reasons that you would like to build up, or reduce, the inventories in your store? (Please explain why.)
One reason for building up or reducing inventory is seasonal demand which is when consumers are interested in a product for a specific period of time (Seasonal Demand, 2018). For instance, the demand for building homes increases in the spring so building up an inventory of the necessary building supplies would happen at the end of the winter months. In fall when demand declines reducing the size and/or frequency of orders becomes necessary so there are not excessive amounts of inventory on hand.
References:
Carrying Cost of Inventory. (2018). In Investopedia. Retrieved October 11, 2018, from https://www.investopedia.com/terms/c/carryingcostofinventory.asp
Peavler, R. (2018, May 15). Just-in-Time (JIT) Inventory Management. In The Balance. Retrieved October 11, 2018, from https://www.thebalancesmb.com/just-in-time-jit-inventory-managemen
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