The Costs to Carry Inventory for a Small Business

Posted by BOTSolutions under Strategy
From http://getbackontracknow.com 4209 days ago
Made Hot by: OpenSourceMedia on May 1, 2013 11:15 pm

Understanding the full costs of inventory is very important for any small business. Keeping these costs down will result in cost savings for their business.

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Comments

Written by lyceum
4207 days ago

Barbara: I agree that we always have limited funds (that is a valid concept in economics) and that you have pick between alternatives. The problem I have is that you put a cost on the alternative that you don't pick! ;)

I worked for a company that applied the 80/20 rule throughout the whole organization. Regarding the inventory you could find that 20 percent of the products were generating 80 percent of the revenue. Less than 20 percent of the products were "shelf warmers" and could have much more impact on the binding of capital of what it should have, rejection and return to the vendors of not sellable material with a long overdue due date, etc.

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Written by lyceum
4208 days ago

Barbara Goldberg: As an experienced purchaser and cost analyst I know about the challenges about inventory management. You want to have enough material in stock, but not too much! ;) Personally, I am not so sure about the so-called "Opportunity Costs" that you learn about at school and in business literature, but I would say that the Pareto Principle is applicable to what to have in stock and what not to have on the shelves.

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Written by BOTSolutions
4207 days ago

Martin, thanks for your comments. I included "Opportunity Cost" because like you mentioned it's something that we've either learned or heard about. When it comes to small business I believe that because they don't have unlimited funds they pick and choose what they believe is best for their business.

I'm curious, could you explain more on how you would apply the Pareto Principle to inventory.

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