Capital costs are the costs required to purchase raw material or inventory items along with financing fees, loan maintenance fees, and interest. They refer to the money that is invested in your inventory.
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.
Opportunity costs are the opportunities that you may have missed out on as a result of a purchase you made. In other words it is the return on your investment that could have occurred had you chosen to invest in something else.
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.
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