Inventory Cost

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What is Inventory Cost in E-commerce? 

All the costs involved with maintaining inventory throughout the supply chain are known as inventory costs. These expenses may involve the storage, management, purchase, and movement of inventory through various supply chain stages. There are three types of inventory cost categories – ordering costs, carrying costs, and stockout costs. 

Significance of Inventory Cost in the E-commerce Supply Chain 

Companies should aim to reduce their inventory costs as it negatively impacts the bottom line of the supply chain. Here are some added benefits of inventory costs:

  • Monitoring and analyzing a company’s inventory costs can give the finance team an idea of managing the expenses better. 
  • It also helps develop better strategic plans to lower inventory costs while increasing product profit. 

Prerequisites of Inventory Cost and How to Calculate It?

Inventory cost = (inventory purchases + beginning inventory) – ending inventory

  • A company needs to properly implement inventory forecasting into its supply chain to maintain inventory levels in the business. 
  • Budgeting the inventory storage properly can cut back on inventory and warehouse costs. 

Use Cases with Inventory Cost 

Suppose a business’ beginning inventory is worth AU$60,000 at the start of the year, purchases AU$200,000 worth of new inventory and is left with AU$80,000 worth of ending inventory at year end. The inventory cost for that business would be: 

(AU$60,000 + AU$2,00,000)- AU$80,000 = AU$1,80,000 

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