Like many other areas that lean is applied to a company's supply chain or "extended value stream" is a tightly linked set of processes. These processes extend beyond one's organization and connect the entire system together.
Holding costs are all of the expenses a company incurs to hold inventory items over a period of time before they are used to fill orders. Generally speaking, Inventory carrying/holding costs are the costs you incur as a result of holding inventory. It is most often described as a percentage of your inventory value. The percentage is often unique to organizations and includes the amount of capital invested in inventory as well as depreciation, space occupied, insurance and opportunity costs. Inventory carrying or holding costs generally account for 15-30% of a business’s total inventory value.
This is one of the basic costs that is associated with your inventory. When thinking of item level inventory, item cost typically includes the price that you pay to acquire the item as well as any costs that you may incur when purchasing. Some examples of extra costs that may be incurred as part of your item costs are taxes, duties, fees, packing and even transportation fees. Unit costs generally change based on the size of your order.
ABC inventory classification is one of the most fundamental concepts of inventory management. Many organizations use ABC inventory classification to assist with inventory management, sales of inventory and purchasing of inventory. This classification system works by placing inventory into different categories.
Ordering costs can skyrocket when managing inventory. On one hand you want to keep your inventory levels low so that you don’t tie up cash and on the other hand you want to have inventory on hand so that you are placing a high volume of orders. Both have their positives and negatives. One of the more common ways to go about lowering ordering costs is to use an approach known as joint replenishment.
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