Classification of Inventory on the basis of nature of material

  • MRO - maintenance ,repair  
and operating inventories

  • Work- In -process inventory

  • Finished goods in inventory



  • Cost of order processing  from the  purchase indents  stage to accounts  and finally  to the
    delivery of item to the factory . Cost involves  the stationary , employee and the time spent on
    these activities.

  • Cost of transmission of orders  from purchase deptt  to suppliers , fax , telephones  cost of
    postages etc  with advent of internet  and erp  there has been considerable drop in these costs .

  • Cost  of  transportation  including freight , octroi , transit insurance  and protective packaging for
    the same

  • Cost of invoice ,book entries  and processing payments

  • Cost of  Inspection , handling , receiving


  • Space  rent  for the storage  of goods

  • Cost of  Working Capital locked in the inventory

  • Cost of insurance of goods

  • Cost of spoilage of goods  in storage , breakages in handling

  • Cost  of  deterioration  and obsolesence of  goods due to passes of time


Stock out  cost  can vary from negligible   to total production loss . Hence inventories have to  scrutinised
in regular basis and with tools like ABC OR VED analysis

Next -Transportation

Cost reduction strategies - procurement

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