Optimization of Inventory Holding Cost Due to Price, Weight, and Volume of Items
Gurtu, Amulya
Gurtu, Amulya
Abstract
The inventory carrying cost has been assumed uniform for all products in an organization or a warehouse. This assumption is not valid for a diversified range of items in an organization or warehouse. This paper tested this hypothesis of variations in inventory holding costs in a warehouse in two industries based on the physical nature and the price of products. It is found that organizations with a wide variety of products need to calculate the inventory holding cost for each item (SKU) rather than using an average percentage cost of inventory. Inventory holding costs of items in two different organizations were calculated based on the various factors, including the actual cost of space due to the voluminous nature of the items with their existing inventory policies. A variation in inventory holding costs for each item was observed. The variation was small for an organization with homogeneous input costs, and it was large for a multi-product organization. The overall savings in the inventory holding cost due to adjusting the inventory policies through this methodology was found to be about 3%, which is significant for a big organization. This analysis will affect the decision the determining inventory carrying cost, inventory policies (e.g., stocking levels), and pricing policies (e.g., quantity discounts) for retail organizations.
Description
Date
2021-02-04
Journal Title
Journal ISSN
Volume Title
Publisher
MDPI
Collections
Research Projects
Organizational Units
Journal Issue
Keywords
Citation
Gurtu, A. (2021). Optimization of Inventory Holding Cost Due to Price, Weight, and Volume of Items . Journal of Risk and Financial Management, 14(2), 65. https://doi.org/10.3390/jrfm14020065