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Costs
Procurement
Costs
Inventory
Costs
Delivery (Supply
to Customer) Cost
Logistic
Costs
Processing
Costs
Finance Cost
Misc. Cost
S.N.Panigrahi
Reduction in
Cost per Unit
Transport Negotiation
Warehousing / Stocking
Reduced Lifecycle Costs
Tax Planning
Improved
Operating
Efficiency
Change in Consumption/
Volume
Specifications Review
Reduced Procurement
Related Operating
Expense
Demand Side
Management
Supply Side
Management
Examples
S.N.Panigrahi
Broad Areas
Inventory Cost
Reasons for Inventory
To create a buffer against uncertainties in supply & demand
To take advantage of lower purchasing and transportation cost
associated with high volume
To take advantage of economies of scale associated with
manufacturing products in batches
To build up seasonal demand for promotional sales
To accommodate product flowing from one location to another (work in
process or in transit)
To exploit speculative opportunities for buying and selling commodities
and other products
Cost of capital
Storage, Handling & Maintenance
Obsolescence, Damage and Deterioration
Pilferage/Shrinkage
Insurance, Taxes, Depreciation
Management costs Ordering, IT Operation, Processing, Staffing
Opportunity Cost
S.N.Panigrahi
Inventory Costs
(Inventory
Reduction is
Recognized
as a Cost
Reduction)
Consolidate Inventory;
Reduce Surplus and
Obsolete Inventory
Improve Supplier's
Quality & Time Delivery
Performance
Review EOQ
Improve Consumption
Turn Over
Supplier Managed
Inventory
Involve All Concerned
S.N.Panigrahi
Inventory
Cost
Reduction
Improve Accuracy of
Forecasts
S.N.Panigrahi
Airways
Seaways
Volume
Railways
Capability
Accessibility
Traceability
Location
Nature of
Cargo
Road
Pipelines
S.N.Panigrahi
Reliability
Conveyers
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S.N.Panigrahi
S.N.Panigrahi