There are many inventory costs, both direct and indirect. The most obvious inventory cost is the actual price you pay for individual items. However, there are numerous indirect costs associated with inventory that can significantly impact an organization’s bottom line. Here are a few examples of the most common types of costs associated with inventory:
Inventory Storage Costs
Examples of inventory storage costs include:
- Purchasing or renting space to store your inventory
- Utilities (electricity, internet, climate control)
- Storage infrastructure (shelving, coolers, bins, boxes)
- Furniture for personnel
- Utility costs
Many organizations with facilities bursting at the seams will have to expand existing storage space for their growing inventory. Unfortunately, they also have to absorb these extra costs that may not be in their budget.
Inventory Handling Costs
Examples of inventory handling costs include:
- Employees’ time associated with receiving and stocking items
- Recognizing and submitting for new inventory purchasing
- Website management to ensure that inventory levels are accurate
- Organizing inventory (shipments and returns)
- Producing the necessary paperwork to document tasks
- Packing materials and/or equipment
While these inventory costs may be difficult to identify if a full-time employee is not dedicated to them, they are present even if the tasks only require a portion of an employee’s time.
Inventory Insurance and Taxes
A general business insurance policy will cover your inventory but if its value is significant, separate coverage may be required. You will often find that inventory insurance covers damage during handling of your goods, theft and/or pilferage, shortage, and damages caused by natural disasters.
Some products, including food and flowers, are perishable, clothing trends go out of style, and electronic devices can become out-of-date when a new version is released. In the realm of business inventory management, obsolescence refers to those products that are difficult or impossible to sell. Costs associated with obsolescence can occur for a variety of reasons but one of the more common scenarios is holding onto inventory for a long period of time.
Inventory Theft and Damage
Unfortunately, if proper controls are not put in place, an organization is exposed to the risk of theft and damage can occur in a variety of ways, including: parts are not stored properly, climate control is not reliable, procedures for moving heavy parts are not clearly defined, or parts remain in inventory for long periods of time.
Inventory is an investment. All businesses – big and small – have a finite amount of resources. The above items are not meant to discourage you. However, part of running a business means finding the delicate balance of the resources you have available. With proper management and leveraging of data, you can uncover opportunities to invest your inventory budget into other growing areas of your business.
For information on controlling your inventory costs, please contact TRXio at 844-868-7225, or click on the button below for a free demo of our sofware. We can help you get your inventory costs under control.
Answers to Other Inventory Questions: