Inventory carrying cost, carrying cost, or cost of holding inventory is most often described as a percentage of the 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.
Reference: Carrying cost of inventory: Investopedia
Inventory is listed as an asset on a firm's balance sheet and consists of the stocks or items needed to maintain production, support activities such as maintenance and repair, and provide customer service. Inventory typically is categorized based on its flow through the production cycle, using such designations as raw materials, work in process, and finished goods. Maintenance, repair, and operating supplies also are stocked to support the functionality of the firm.
For planning and forecasting purposes, inventory is classified based on the source of its demand as either independent or dependent. Independent demand items are requested directly by the customer and thus must be forecasted. Demand for dependent items can be derived or calculated based on relationships to independent items, usually noted by higher levels in the bill of material.
Reference - Inventory (APICS OMBOK Framework 5.2).
The icon shown above is used to visually display inventory on a value stream map. This symbol also represents places in a value stream where the flow of material/information is stopped (wait points).
Inventory velocity is the speed at which inventory passes through or is cycled in a given period for each item. Inventory velocity’s underlying objective is to improve the turnover of inventory.
How is it measured?
Inventory Turns = Cost of Goods Sold / Average Inventory on Hand.
How can you Improve Inventory Velocity?
Thinking of inventory velocity in terms of inputs and outputs (applying six sigma) can be very helpful when trying to improve inventory velocity. If our measurement is Inventory turns (Y) then we need to be able to identify the inputs (X's) and the process or functions being applied. If the inventory turnover is not meeting a standard or performance level that we want, we then know that our inputs (X's) need to change in a manner that improves our output, or at least moves it in the correct direction. Some ways to improve inventory velocity are:
1. Reduce cycle times
2. Reduce lead time associated with vendors
3. Look to balance the flow of value streams
4. Reduce buying sizes
5. Remove material that is obsolete
6. Use cycle counting and establish ABC classifications
Internal setup refers to the activities associated with elements of a setup procedure that can only be performed while a process or machine is not running.
Examples of Internal Setup Activities:
Services for improving setup times:
The ABC's of