By Frances Cairncross
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Inventory Carrying Cost Calculation. carrying costs, usually erring on the side of underestimation. Let’s tackle the problem by examining the key components of the carrying cost percentage. The single biggest factor is the opportunity cost of consuming capital on the hunch of future demand and supply events. So, aside from having $300,000, $3 million, or $300 million invested in inventory, what else could you do with that amount of capital if it were not tied up in inventory? This cost of capital component is the single largest piece of inventory carrying cost.
Logistics plays an important role in support of bringing innovative products and services to light. By effectively coordinating material flows with suppliers and managing distribution with intermediaries and customers, the logistics organization can help the company to “make the boat” rather than miss it. Along with a thorough understanding of internal operations, this physical connection to suppliers upstream in the supply chain and customers downstream allows logistics to assume a leadership role in the realm of supply chain management.
First, the concept of supply chain management is not well understood. Much debate has surrounded the very meaning of the term, with a lack of consensus existing even today. Even the functions that belong in supply chain management have been debated. Another reason supply chain management is not widely practiced is that it is not easy to accomplish. As noted, it involves coordination of planning and operational activities throughout the company as well as coordination of activities with suppliers and customers.