How do you communicate the impact of inventory carrying cost to your stakeholders and decision-makers?

The question is asked about communicating the impact of inventory carrying cost (ICC) to the stakeholders and decision-makers. However, accurate calculation precedes communication. Calculating ICC accurately is not easy. Many companies do not even calculate the ICC. Second, if the company has taken a loan from a bank, the interest charges become a major component of the ICC and not the value of the inventory. Nevertheless, communicating the impact of the ICC is important for an Inventory Manager or Inventory Planner. To communicate this to stakeholders, they may explain how reducing the inventory releases blocked working capital and the savings it has given the company

Inventory carrying cost is a crucial factor that affects the profitability and efficiency of a business. As a decision-maker, it is important to communicate the impact of inventory carrying cost to stakeholders in a clear and concise manner. This can be achieved by analyzing and presenting data on the cost of holding inventory, including storage, insurance, and obsolescence. Additionally, showcasing the financial impact of inventory carrying cost on the company's bottom line and discussing potential strategies to reduce it can help stakeholders understand its significance. It is also essential to emphasize the importance of optimizing inventory levels to maintain a healthy balance between supply and demand.

Clearly outline the various components of inventory carrying costs, including storage, obsolescence, insurance, and opportunity costs. Quantify these costs in monetary terms to provide stakeholders with a clear understanding of the financial impact

Inventory Turnover Ratio Explain the inventory turnover ratio to show how quickly inventory is sold and replaced, illustrating the efficiency of inventory management. Carrying Cost Percentage Present the carrying cost as a percentage of total inventory value to quantify the impact of holding excess inventory. Cost per Unit Break down the carrying cost to a per-unit basis to simplify understanding and show the direct impact on individual products. Annual Carrying Costs Provide annual carrying costs to highlight the cumulative effect on the company's finances over time. Cost Comparison Compare carrying costs with other key expenses, such as labor or rent, to provide context and emphasize its significance.

I've found it helpful to visualize what different stock levels might look like for ICC. At my company we target 90% in stock due to many items being custom or on demand. Keeping everything in stock at all times comes at a very high cost to the company. Showing the costs associated with multiple levels can be eye-opening to different business areas and will also allow your company to make informed decisions weighing ICC along with many other factors.

I think using feedback and questions is a great way to engage your audience and show the impact of ICC. Asking for their opinions and addressing their concerns builds trust and makes the conversation more interactive. This approach helps you tailor your message to their needs and ensures clarity and understanding.

Link to Organizational Goals: Align the discussion of inventory carrying costs with the organization's overarching goals and objectives. Demonstrate how optimizing inventory management can contribute to achieving strategic objectives such as cost reduction, improved cash flow, and enhanced customer satisfaction.