From the course: Inventory Management Foundations
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Total cost analysis
From the course: Inventory Management Foundations
Total cost analysis
- Controlling inventory cost is everyone's responsibility. And I mean everyone. The reason I think so is pretty straightforward. To properly manage the cost of inventory, you must take the more strategic view and consider the total cost of inventory. And because costs are spread throughout your organization, they are managed by people in purchasing, operations, distribution, finance, accounting, just about every function in your company. So it's important that everyone understand the components of total cost analysis and how they can be effectively managed. Total inventory cost has four different components. First, there's unit cost. This is the amount you paid for the inventory item, whether it is raw materials for your factory or components for your assembly line or finished products for your customer. Second is the cost of holding that inventory. This includes storage costs, insurance and interest paid for bank loans to…
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