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Carriage cost is the cost of holding inventory, taking into account factors such as storage, personnel, and potential loss or damage. Just in time manufacturing can reduce inventory and associated costs.
Carriage cost is a measure of the cost associated with holding inventory for a specified period of time. The cost takes into consideration a number of factors, including the expense of housing the inventory in a storage facility, any utilities employed to maintain that storage facility, and the salaries and wages paid for the personnel to monitor and maintain inventory over the long term. A load cost is usually presented as a percentage and can give a business a good idea of how long inventory can be held before it is no longer profitable to do so.
When calculating the cost of carrying, manufacturers look at several additional issues that contribute to the overall cost of carrying inventory. If the goods held as part of the inventory have a limited shelf life, the perishability factor becomes very important. For products that could be replaced by other products over a period of time, consideration of the potential for obsolescence also becomes very important. The potential for property theft contained in the inventory should also be considered as part of the calculation, as well as the potential for accidental damage to one or more components of the inventory.
In general, the goal of any business is to keep the cost of transportation as low as possible. This means finding ways to move existing inventory so that the total value of the inventory stays below a certain figure. Doing this automatically helps reduce the chance of spoilage, as well as minimize the chances of inventory components becoming obsolete and needing to be scrapped. A consistent turnover in inventory also helps with expenses such as insurance costs and taxes, thus reducing the overall expenses incurred by the business as part of the operational process.
One approach that helps reduce the cost of carrying an inventory is to implement what is known as just in time manufacturing. With this model, the manufacturer produces goods at a rate that remains only slightly above demand. This means that finished goods do not remain in inventory for long periods of time as they are shipped quickly to fill existing orders. This results in a much smaller inventory at any given time, which in turn makes it possible to enjoy fewer warehousing costs, reduce your inventory tax liability, and overall minimize your transportation costs. .
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