{"id":5368,"date":"2010-10-26T05:15:36","date_gmt":"2010-10-26T12:15:36","guid":{"rendered":"https:\/\/staging.opexlearning.com\/resources\/?p=5368"},"modified":"2014-10-08T15:21:31","modified_gmt":"2014-10-08T20:21:31","slug":"inventory-carrying-costs-equation","status":"publish","type":"post","link":"https:\/\/staging.opexlearning.com\/resources\/inventory-carrying-costs-equation\/5368\/","title":{"rendered":"Inventory Carrying Costs Formula: How Much Does Inventory Really Costs?"},"content":{"rendered":"<div class=\"a296a24fa2fc69ef5487857f02f111e8\" data-index=\"9\" style=\"float: none; margin:10px 0 10px 0; text-align:center;\">\n<script async src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script>\r\n<!-- Single Post readerboard -->\r\n<ins class=\"adsbygoogle\"\r\n     style=\"display:inline-block;width:728px;height:90px\"\r\n     data-ad-client=\"ca-pub-8207522353004717\"\r\n     data-ad-slot=\"1144967431\"><\/ins>\r\n<script>\r\n(adsbygoogle = window.adsbygoogle || []).push({});\r\n<\/script>\n<\/div>\n<p>Customer spend in online retail is expected to be over $300 Billion in 2010. With brick-and-mortar and online retail combined, we&#8217;re looking at well over $300 Billion in spend in 2010. Indeed, a big business.<\/p>\n<p>This article looks into the real and true costs of inventory, by looking at the inventory carrying costs formula. No, <a title=\"inventory in a service operation\" href=\"https:\/\/staging.opexlearning.com\/resources\/inventory-management-service-manufacturing\/8172\/\">not the &#8220;inventory&#8221; in service operations<\/a>, but actual hard goods, stuff that sits in a warehouse or stuff that flows through a supply chain.<\/p>\n<p>A common component of the retail value chain is the Fulfillment Center, which holds inventory that is either shipped directly to the customer (for online retail) or transported to brick-and-mortar stores to replenish their inventory. This part of the supply chain is complicated and represents a large part of the cost of doing business in retail.<\/p>\n<p>In Retail (online and brick-and-mortar), the majority of the assets are in the form of inventory, with the hope of selling that inventory for a more liquid asset &#8211; cash &#8211; and for more than what was paid for it. But, this view is near-sighted because looking at the cost of inventory (COGS) and what that inventory was sold for (Gross Margin) doesn&#8217;t tell or capture the full story of the cost of that inventory.<\/p>\n<h2>Inventory Carrying Costs<\/h2>\n<p>Moving away from conventional accounting methods for inventory, I propose using the standard inventory metric we call Inventory Carrying Costs (ICC) &#8211; a metric that some or most retailers with fulfillment capabilities do not yet use or understand:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-5377 aligncenter\" title=\"inventory-carrying-costs\" src=\"https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2010\/10\/inventory-carrying-costs.jpg\" alt=\"inventory carrying costs equation\" width=\"318\" height=\"51\" srcset=\"https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2010\/10\/inventory-carrying-costs.jpg 318w, https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2010\/10\/inventory-carrying-costs-300x48.jpg 300w\" sizes=\"(max-width: 318px) 100vw, 318px\" \/><\/p>\n<p>Where,<\/p>\n<ul>\n<li>C: Capital<\/li>\n<li>T: Taxes<\/li>\n<li>I: Insurance<\/li>\n<li>W: Warehouse Costs<\/li>\n<li>X: Shrinkage<\/li>\n<li>S: Scrap<\/li>\n<li>O: Obsolescence Costs<\/li>\n<li>R: Recovery<\/li>\n<\/ul>\n<p>Why is this important?<\/p>\n<p>Customer Experience is about experience up-and-down the value chain: from the site, to ordering the product, to receiving the product, and to interactions with customer service. The customer will remember her experience &#8211; in all the points of interaction with the company.<\/p>\n<p>In order to provide the Customer Experience our customers demand of us, requires that we get our house in order and eliminate waste and avoidable costs. A good place to begin are to attack the variables above. In other words, when we reduce Warehouse Costs, Shrink, Scrap, Obsolescence, and Recovery (which includes Customer Service, win-back campaigns, and Returns), we will be fundamentally improving our cost structure and improving the customer experience.<\/p>\n<!--CusAds0-->\n<div style=\"font-size: 0px; height: 0px; line-height: 0px; margin: 0; padding: 0; clear: both;\"><\/div>","protected":false},"excerpt":{"rendered":"<p>Customer spend in online retail is expected to be over $300 Billion in 2010. With brick-and-mortar and online retail combined, we&#8217;re looking at well over $300 Billion in spend in 2010. Indeed, a big business. This article looks into the real and true costs of inventory, by looking at the inventory carrying costs formula. No, [&hellip;]<\/p>\n","protected":false},"author":12327,"featured_media":9576,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[16],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Inventory Carrying Costs Formula<\/title>\n<meta name=\"description\" content=\"Inventory Carrying Costs Formula and how to reduce it using Lean\" \/>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, 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