3-1 mar

Question 

· What is your company's Inventory Carrying Cost rate? (Ask your Director of Logistics or the CFO.  If that's not possible, provide an estimation using all 4 categories presented in class.)  Do you think it's an accurate computation, a good estimate or a not-even-close estimate?  Recommend one action that should be taken to improve the accuracy of this number.

Reply to the students response in 150 words and provide 1 reference

Students response

An estimation our organization’s Carrying Cost rate:

Capital 

Investment $1,400.00

Inventory Service Cost 

Insurance 0.00 

Taxes (N/A) tax exempt 0.00 

Storage Cost 

Warehouse (own, rent) owned 

Operations cost (labor, utilities, etc) $1,184,544

Risk cost

(DD200) Covers obsolescence, damage and pilferage $1,200,000 

k=Total Carrying cost/Average Value of Inventory held = $1,500,000/$3,784,544 = 37%

It is imperative to have an accurate account of carrying costs because it is a critical factor in calculating profit from current inventory, it aids in determining increase or decrease in production in order to maintain a desired balance between income and expenses and since carrying costs are typically 20 - 30 percent of your inventory value, it is an essential cost factor to account analyze. Recognize and consider different inventory management techniques and tools such as online inventory managements systems that accurately tracks and take account of every inventory to minimize carrying costs instead of than relying on manual tracking on excel spreadsheets. This will also provide valuable information regarding accurate demand forecast and ROP to help reduce carrying cost as well.