What is Inventory in Transit?
Transit inventory also known as transportation or pipeline inventory refers to the finished goods that have been shipped by a vendor and haven’t yet been received by the buyer. In other words, inventory in transit is the purchased inventory that is currently on its way to a physical store, an eCommerce warehouse, or a distribution center.
Calculating The Cost
To calculate the cost of in-transit goods you will need to know the average cost of transportation as well as the carrying costs.
Let’s say a company sells a particular product with an average inventory shipment value of $15,000 and takes approximately 20 days to reach its destination. We can assume that the storing costs are equal to 15% of the merchandise cost thus we can use the following formula:
(Merchandise Cost x Carrying Cost %) / 365 = Average Shipment Value Per Day
ex. ($15,000 x 15%) / 365 = $6,16 per day
Then the average cost of transportation per shipment will be:
Average Shipment Value Per Day x Number of Days of Transit = Cost of Transportation
ex. $6,16 x 20= $123,28
and finally, we can calculate the total cost of goods in transit
Average Shipment Value + Cost of Transportation = Cost of Goods in Transit per shipment
ex. $15,000 + $123,28 = $15,123.28 per shipment
How To Refine Your In-Transit inventory management?
- Invest in a powerful inventory management solution
- Have shipping insurance in place
- Integrate all your sales and inventory data in one place
- Improve your inventory auditing