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On September 26 2025 01:10 Uldridge wrote:
Okay, can anyone help me out here?
Today I got into an discussion with a colleague who claimed that putting too much stock of a raw material in the warehouse (to be used in a product), was at the very least suboptimal and even losing capital. I posited that, even if the stock for this product (fixed price btw), had a guarantee use, that this wouldn't be too much of a problem because the turnover is guaranteed. He also threw a number around that putting a product on stock costs like a fixed sum per pallet or something (which I don't really understand and I assume this is where the devaluation of the raw materials is coming from). If my company owns all the items and the warehouse included, how is it losing money to stock an item for an unforseeable time when this item will 100% be used at a point in time?
I see 3 issues that could become a problem when putting too much stock:
1) hampering warehouse efficiency. Putting too much causes too little space for literally fitting everything and because turnover rate is high for many items this causes a fixed % of the warehouse being unusable and basically hampering your flexibility.
But, we have enough space.
2) buying the materials up front and the market value then decreasing subsequently. This leaves you with an overpriced material that you'll have to sell at a loss.
But this item has a fixed price.
3) buying too much of the material anticipating a turnover that just doesn't happen. This leaves you with a raw material that becomes dead weight for you and so this is a loss for when you sell to a third party with a big discount.
But, this product will sell and the expiry date is very long.
So am I missing something here? Why is there an opex for assets that we literally own? Or is this just accounting just so you can drive business or something (i.e. Things have to mooooooooove).
As a supply chain / procurement consultant I'm going to have to bill you for the answer to this
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United States43582 Posts
Charging someone for an answer that has already been provided by another is a classic consultant play.
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On September 26 2025 06:50 KwarK wrote:
Charging someone for an answer that has already been provided by another is a classic consultant play.
This guy gets it
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On September 26 2025 08:10 decafchicken wrote:Show nested quote +On September 26 2025 06:50 KwarK wrote:
Charging someone for an answer that has already been provided by another is a classic consultant play. This guy gets it
Wrong, you're supposed to explain why he is wrong and why your ongoing contribution is essential to this endeavor.
That'll be $20, please.
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On September 26 2025 04:19 Acrofales wrote:Show nested quote +On September 26 2025 01:10 Uldridge wrote:
Okay, can anyone help me out here?
Today I got into an discussion with a colleague who claimed that putting too much stock of a raw material in the warehouse (to be used in a product), was at the very least suboptimal and even losing capital. I posited that, even if the stock for this product (fixed price btw), had a guarantee use, that this wouldn't be too much of a problem because the turnover is guaranteed. He also threw a number around that putting a product on stock costs like a fixed sum per pallet or something (which I don't really understand and I assume this is where the devaluation of the raw materials is coming from). If my company owns all the items and the warehouse included, how is it losing money to stock an item for an unforseeable time when this item will 100% be used at a point in time?
I see 3 issues that could become a problem when putting too much stock:
1) hampering warehouse efficiency. Putting too much causes too little space for literally fitting everything and because turnover rate is high for many items this causes a fixed % of the warehouse being unusable and basically hampering your flexibility.
But, we have enough space.
2) buying the materials up front and the market value then decreasing subsequently. This leaves you with an overpriced material that you'll have to sell at a loss.
But this item has a fixed price.
3) buying too much of the material anticipating a turnover that just doesn't happen. This leaves you with a raw material that becomes dead weight for you and so this is a loss for when you sell to a third party with a big discount.
But, this product will sell and the expiry date is very long.
So am I missing something here? Why is there an opex for assets that we literally own? Or is this just accounting just so you can drive business or something (i.e. Things have to mooooooooove). In addition to the opportunity cost, I have to quibble with point (1): you have space. Space costs money. You rent a warehouse (or have bought a warehouse). That's a cost you want to minimise. At absolutely perfect efficiency you need no warehouse at all: the product comes in and is already needed in production. This is the dropshipping way, and is great if your supply is always guaranteed with known delivery times. But recent "hiccups" have shown this isn't necessarily the best option: the accident in the Suez canal, COVID, Yemeni rebels, tariffs, etc. all caused delays and/or uncertainty in international supply lines. So relying on prompt and reliable delivery is risky and having storage provides some slack in delivery, at the cost of having to store materials. That IS a cost. Even if you "have the space", because you could be doing something else with that space. There's also the risk of breakage or spoilage, even if they have a long expiry date: rats, humidity, moths, etc.etc. could ruin a batch, so you have to invest in things to keep your warehouse clean, dry, etc. and the more storage space you have the greater that cost.
Yep, all the most successful businesses have insanely efficient supply chains.
Apple’s profit margins aren’t just through their high prices and skimping on stuff like memory and storage, so much of it is Tim Cook shoving so much money into Chinese supply chains to minimise warehousing, the amount of inventory and push their competitors out of the supply chains via preferential treatment to everything.
There’s a reason why a bean counter like Tim Cook is their CEO right now, he’s responsible for those eye watering profit margins.
Similarly, it’s also why Costco can operate the way to do. There is the membership fee but they have stupid efficient warehousing and they turnover stock like twice the rate of other similar businesses. That turnover is like the main reason they get preferential treatment from their suppliers.
It’s why the argument that the US building factories will bring back US manufacturing is pretty laughable because it’s still not viable unless the US government floods money into US infrastructure to support the sort of supply chains that makes China the preferred manufacturer of just anything mass produced.
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Good luck to everyone in the new year. Hopefully dollar doesn't lose much value this year for those of us who have EU based ETFs :D
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On September 26 2025 01:10 Uldridge wrote:
Okay, can anyone help me out here?
Today I got into an discussion with a colleague who claimed that putting too much stock of a raw material in the warehouse (to be used in a product), was at the very least suboptimal and even losing capital. I posited that, even if the stock for this product (fixed price btw), had a guarantee use, that this wouldn't be too much of a problem because the turnover is guaranteed. He also threw a number around that putting a product on stock costs like a fixed sum per pallet or something (which I don't really understand and I assume this is where the devaluation of the raw materials is coming from). If my company owns all the items and the warehouse included, how is it losing money to stock an item for an unforseeable time when this item will 100% be used at a point in time?
I see 3 issues that could become a problem when putting too much stock:
1) hampering warehouse efficiency. Putting too much causes too little space for literally fitting everything and because turnover rate is high for many items this causes a fixed % of the warehouse being unusable and basically hampering your flexibility.
But, we have enough space.
2) buying the materials up front and the market value then decreasing subsequently. This leaves you with an overpriced material that you'll have to sell at a loss.
But this item has a fixed price.
3) buying too much of the material anticipating a turnover that just doesn't happen. This leaves you with a raw material that becomes dead weight for you and so this is a loss for when you sell to a third party with a big discount.
But, this product will sell and the expiry date is very long.
So am I missing something here? Why is there an opex for assets that we literally own? Or is this just accounting just so you can drive business or something (i.e. Things have to mooooooooove).
It is suboptimal:
1. The max profit making is what should be focused. In and out (just in time) is where you maximize the profit.
2. In an ideal competitive world, you wouldn't want a big chunk or raw material just sitting there. You would be fairly cash starved. If you had the money for that much raw material, you could have spent it elsewhere to make a bigger pie all together.
3. The amount of workload involved like stock pick, proper storage, sorting, insurance cam be quite a significant investment and cashflow.
But it also depends on what you mean by raw material. For some industries it might make good sense, like chips and ram right now (not raw material per se)
Most people wouldn't even buy physical gold and store it themselves, when it is possibly the safest way to build wealth.
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EPT
