15 Oct company’s Inventory
Reply to the students response to the question in 150 words and provide 1 reference
question
- What is your company’s Inventory Carrying Cost rate? (Ask your Director of Logistics or the CFO. If that’s not possible, provide an estimation using all 4 categories presented in class.) Do you think it’s an accurate computation, a good estimate or a not-even-close estimate? Recommend one action that should be taken to improve the accuracy of this number.
Students response
Inventory carrying cost is a controversial topic as it is necessary for the supply chain to determine its cost of keeping an inventory. I am part of SK Hynix on the analytics side but since I have cross functional teams located in the Logistics side, I was able to obtain ours. Based on last year’s date, our inventory carrying cost rate was 24%. Hynix is the world’s second-largest memory chipmaker and the world’s 3rd-largest semiconductor company so it’s common to us to maintain a large number of inventories to keep up with the large demand. We basically need to have a good strategy as well in order for us to avoid seeing our costs surge. We have seen on the discussions in our book that U.S. inventory carrying costs since 2010 consistently have been between 19% and 20%. Fair enough, I can consider that our company is doing its objective to maintain our percentage in a healthy level.
As to its accuracy, I can say that these are close to estimate since our products are always moving. We have dead stocks, but these are part of obsolescence risks every company suffers. One action that I will recommend to improve the accuracy of your numbers is to maintain an updated carrying cost monitoring. Fixed costs such as rent can be reflected over a long period of time but your variable costs such as warehouse staff salaries, utilities, insurance of inventory and damages or expiration occurrence should always be tracked so you can get the right percentage accurately.
Reference:
Murphy Jr., P. Knemeyer, M. ” Contemporary Logistics, Twelfth Edition ” Chapter 8. (2018) p. 346
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