Constant improvement, high pace of entry into market, satisfaction of the interests of consumers, staff and vendors, global competitive ability require exceptional advertency to productiveness and value appending activities. These organization goals determine the attitude of leaders to quality, quantity, conditions of supply and bring essential influence on the process of the material delivery.
Concerning the quality and conditions of supply, reduction of stocks and lead time are the most compelling evidence. Both results might be achieved by increasing delivery frequency and decreasing the supply package for once at the same time.
Meanwhile, it is necessary to reduce time for an equipment reconfiguration, to use ‘just in time’ system, system of supplies administrated by vendor, pulls in the order placement expenses. Besides, it is necessary to utilize EDI, the instruments of electronic commerce and the set of means applied for solving this task.
Inventory expenses
High expenses for inventory holding led to development of various systems aiming at the reduction of volume of stock. Thus, Japanese producers switched to usage of saving supply chains including ‘just in time’ system. It is necessary to understand the nature of inventory and its expenses in order to capably apply the most matching instruments, taking into regard the demands of your organization.
Every item stored at inventory should bring fewer expenses than those existing when the item is absent. This is the only reason why inventory exists. The inventory supplies are real but it is hard to determine their amount. Referring any kind of costs to certain elements of cost I particular situation depend on decisions to be taken. Many expenses stay unchanged even if the order quantity for the single item doubles, but the same expenses may change substantially if the order for five thousand items it to be reviewed. The main types of inventory expenses are described below.
Operating costs
They include costs for materials handling, storage building of warehouse rent, equipment necessary for the production of stored supplies, storage itself, work or operational costs, insurance payments, expenses appearing due to breakage, stealing or obsoletion of the production. This also includes tax payments, investment of alternative costs.
Operating costs might be very high. For instance, recent evaluation of annual operating supplies costs comprised 25% up to 50% of total price of the supplies. Many companies are not too good at evaluation of operating costs. Although, several ways to calculate the operating costs exist, the main ways are: 1) major, 2) supplies operation, 3) for storage spaces, 4) supplies risks
After a company has determined its operating costs as a percent amount of supplies price, the annual operating costs for supplies support might be calculated:
Annual supplies support = Average cost of supplies × Expenses for supplies support as a percent of supplies net cost
Average cost of supplies = average supplies (items) × Net cost of an item;
СС=Q/2×C×I,
Where:
СС – annual costs of supplies support;
Q – amount of an order or the volume of material delivery, ea
С – cost of one item of delivered material;
I – expenses for the support of material supplies as a percent of supplies cost.
Placement and purchase costs
They include administration, office costs, expenses for materials, for phone conversations, mail services, fax and e-mail, transport services, accounting, examination and procurement concerning purchase or placement of order for production.
What expenses are not to be covered unless an organization will place an order or if two orders are joined into one? Primary costs are those which are necessary for defining the vendor and then placing an order.
Adjustment costs
These are all the expenses concerning the production pass preparation. These costs might be essential. They include such factors connected with employees training as material damage on the first stages and low efficiency before reaching performance standards , besides, general factors .In particular, these are adjustment type, amount of salary and other employees payments, downtime, additional tool deterioration, component damage or equipment during adjustment, etc.
Deficiency costs
These are costs appearing due to the absence of some components or materials at the necessary time and place. Missed profit, switch to different materials, caused by deficiency can be referred to. It can also be the replacement by less appropriate or more expensive materials; expenses related to changes in activity timetables and forwarding operations; employee or equipment delays. This can often be externally harmful for the company reputation, and sometimes it can even result in serious penalty charges.
Fluctuations of delivery value
It is connected to the purchase volume or time, when delivery expenses are heavier than with different volume or time. Vendors often propose their production in larger quantities or at the certain time of a year with production or transporting discounts. Small amounts or different purchase time might lead to increase of purchase price or transporting expenses, however, bigger volume of purchase may result in higher inventory holding costs.
Many supply expenses are sometimes hard to detect, generalize and calculate. It is possible to observe some particular expenses for occasional items and use this information when taking a decision. As a rule, this kind of costs might be related to broad class of items. The other way is to forecast the impact of essential supply system changes for various cost centers. Due to the fact that the majority of supply models are based on balance of mentioned types of costs, the information upon the costs and quality is very important for getting the best order amount and supply level.
