View Full Version : Inventory Costs

01-07-2014, 09:16 PM

I work for a Midwest OEM of Energy Recovery Ventilation Equipment. I'm looking at switching suppliers for our sheaves/pulleys due to a considerable cost savings. I'm trying to SWAG numbers on the total cost of ownership for our current sheaves to help in our decision making process. If we were to switch suppliers, we would need to purchase larger volumes to avoid excess freight costs. Our current sheave supplier is local and we receive 3-4 smaller shipments per week. The potential new supplier is located on the East Coast, so I certainly would not want to order as often, which would require us to carry more inventory. Does anyone know a good formula for determining the costs of carrying extra inventory in a comparison situation such as this (e.g carrying 1 months versus 2 months). I am aware of the Time Value of Money concept, but would like to know of any different formulas/concepts.

Thank you,

02-18-2014, 06:36 AM
You should list all your orders even to small one so that you have an accurate inventory of all the expenses you've made so that when you have questions on where the money goes, you have idea on where the money goes. It is also good that you don't have any credit (https://personalmoneynetwork.com/personal-loans/) so you can have a clear setting of all the expenses.

03-20-2014, 08:55 PM
With the distant supplier who is going to be shipping larger quantities; why don't you make the freight negotiable? make them pay it. Someone like Motion, Applied, etc all have no-freight agreements with larger customers.

And as far as Inventory costs...assuming you're going to be carrying more inventory; a good solid number is 25%. I've seen it calculated as low as 10%, and i've seen it calculated at 200%.