Calculating stock costs: the 'r' of interest, space and risk
May 2023 – There are costs associated with stock, but which ones? And how do you calculate those costs? In this article, we take a closer look at the elements that influence the cost of inventory.
Inventory management is an essential but often maligned part of business management. Managers see their warehouse as a necessary evil that drives them to unnecessary costs. However, stock management is so much more. By managing stock smartly, companies can outsmart competitors and gain commercial advantage.
Essential to a successful inventory strategy is understanding the cost of your stock. We look at it in more detail below.
This is how you calculate the cost of inventory
To know the cost of inventory, we take into account:
interest: capital costs due to inventory management (e.g. interest on loans with the bank)
space: warehouse rental costs, but also depreciation on warehouse furniture, maintenance and energy costs, personnel costs, etc.
risk factor: costs resulting from the risk inherent in inventory management. For example, goods in stock can age, go out of fashion or spoil, causing the selling price to fall.
Minimising inventory costs?
By always keeping the minimum stock required to meet customer demand, companies can minimise their inventory costs. Manual inventory optimisation plays an important role in this.
However, the biggest efficiency gains are made when SMEs use inventory management software. This is because the best packages not only make inventory management easier, but also perform automated inventory optimisations that drastically reduce inventory costs.
