INVENTORY COST

Relevant Costs For Inventory

Decisions
 Inventory carrying cost

 Procurement cost

 Set up cost

 Stock out cost

 Inventory Carrying Cost
 Capital cost

 Storage cost

 Deterioration or obsolescence

 Insurance cost
 Procurement Cost
 Paper work cost
 Postage cost / Data cost
 Follow up cost and employee cost
 Cost of visit to the vendor’s plant
 Expediting cost
 Operating cost of the vehicles
 Inspection and testing cost
 Administrative cost
 Set Up Cost
 Idle time cost

 Cost of idle wages

 Work order cost

 Foregone profit
 Stock Out Cost
 Cost of men and machine rendered idle
 Cost due to loss of profit
 Cost of emergency actions
 Cost due to premium price
 Cost due to penalty paid
 Cost due to overtime paid
 Cost due to customer’s dissatisfaction
 Cost due to loss of business
 Causes of Stock Out

 Unusual higher demand rate during the

procurement lead time

 Delay in delivery

 Delay in transportation

 Rejection in the incoming consignment

Any Questions?
Thank You…
Prepared by: Dr. K. M. Rahman
Associate Professor
Sinhgad Institute of Management,
Vadgaon, Pune