I did some googling and reading on this topic, and while many websites talk about the cost of inventory, I did not find any that really apply to a smaller business and specifically how to put numbers to the cost of inventory.
Recently I have been reading alot about Lean practices. Not that I intend to implement MOST, but some are just good common sense, and some are improvements. I absolutely hated Lean, 5S, and Kaizen when working Tier 1 Automotive, not because it was wrong/incorrect, but because it was taken to the absurd extreme. Throwing away fixtures and tooling that we had not used in 6 months, only to remake and reorder in 3 months because we needed them again.
To boil it down, I am trying to quantify the cost and method to decide how much inventory to run.
Example being, I make a product, most costs are relative to the quantity run, some are essentially fixed. 4 hrs setup, soft jaws, etc are the same whether I run 1 piece or 100. For the example, say I can make 30 pcs from a 12ft bar. Tooling lasts for 60 pcs.
Pulling a number from an old job, if I run 30 pcs the cost is $87ea, 60pcs is $62, 120pcs is $55.
I can compare the upfront costs, based on tooling, production time, etc. I can make a spread sheet to compare the prices if I setup the 30 pcs 4 times ($64ea) vs the 120 pcs once ($55ea). Running 60 pcs twice gives me $58 ea.
If I sold 15 pieces so far this year, using that as a number, say it takes 2 years to sell the 60pcs, 4 years to sell the 120 pcs.
How do I come up with numbers to decide the cheaper price of $55 ea is a better choice to run and have $6600 in inventory(at cost) on the shelf for 4 years, vs running it twice at $58ea? Or maybe running it twice at $58 ea is the better choice?
Or maybe I should stop wasting your time and schedule an appointment with my accountant
Recently I have been reading alot about Lean practices. Not that I intend to implement MOST, but some are just good common sense, and some are improvements. I absolutely hated Lean, 5S, and Kaizen when working Tier 1 Automotive, not because it was wrong/incorrect, but because it was taken to the absurd extreme. Throwing away fixtures and tooling that we had not used in 6 months, only to remake and reorder in 3 months because we needed them again.
To boil it down, I am trying to quantify the cost and method to decide how much inventory to run.
Example being, I make a product, most costs are relative to the quantity run, some are essentially fixed. 4 hrs setup, soft jaws, etc are the same whether I run 1 piece or 100. For the example, say I can make 30 pcs from a 12ft bar. Tooling lasts for 60 pcs.
Pulling a number from an old job, if I run 30 pcs the cost is $87ea, 60pcs is $62, 120pcs is $55.
I can compare the upfront costs, based on tooling, production time, etc. I can make a spread sheet to compare the prices if I setup the 30 pcs 4 times ($64ea) vs the 120 pcs once ($55ea). Running 60 pcs twice gives me $58 ea.
If I sold 15 pieces so far this year, using that as a number, say it takes 2 years to sell the 60pcs, 4 years to sell the 120 pcs.
How do I come up with numbers to decide the cheaper price of $55 ea is a better choice to run and have $6600 in inventory(at cost) on the shelf for 4 years, vs running it twice at $58ea? Or maybe running it twice at $58 ea is the better choice?
Or maybe I should stop wasting your time and schedule an appointment with my accountant