Storage costs
The warehouse in charge must be aware of the fact that materials cost the organization in the form of intrinsic price paid to the supplier, freight, handling expenses, and inspection charges.
Materials stored in the warehouse cost the organization in terms of men, materials, time, space, insurance, risk and so on.
The inventory carrying cost is approximately about 30 per cent per annum on the average value of materials stocked.
Cost of funds
The cost of money invested in inventories and or opportunity cost for the funds.
Cost of storage place
For storing items, a firm needs space. This includes space for documents, work force, and office furniture etc. The cost incurred on the physical storage facilities in the form of rental value or opportunity cost basis.
Salary and wages
The salary and wages and the statutory payments of stores staff, security staff, stores audit staff, depreciation of bins, racks, handling equipment, furniture, office equipment and other devices used in store.
Obsolete items
Low shelf life items stored will deteriorate over period of time, requires to be disposed off.
Losses in spillage, evaporation of volatile substances and chemicals are also included in inventory carrying cost.
Breakages in handling and in transporting within stores premises will add to the costs. The non-moving items require liquidating at throwaway prices.
Losses due to theft and pilferage are included in the inventory carrying cost.
Insurance cost against fire, theft, burglary and other risks.
Over stocking cost - is an extension of inventory carrying cost, it signifies the investment in inventory for a longer period than necessary. Hence, the opportunity of alternative investment is lost.
Stock out or under stocking cost - in the finished goods area non-availability of an item implies that the customer will go to another vendor or substitute the brand with another. This results not only in loss of profit on sales, but also affects the image of the organization. In the case of raw material, stock out results in idle production line, the cost of lost production during the period of stock out and the extra cost per unit which might have to be paid in an emergency purchase.
The warehouse in charge is expected to manage the stores efficiently by reducing these costs without affecting the service level to the consumer.