How is the carrying charge determined and what connections can be identified with material planning methods?- A survey study of Swedish manufacturing engineering companies

University essay from Göteborgs universitet/Företagsekonomiska institutionen

Author: Josefin Karlsson; Erika Morichetto; Anna Schwerin; [2007-10-04]

Keywords: ;

Abstract: The majority of all manufacturing companies are characterized by the fact thatthey are holding some sort of inventory. The inventory makes up the main asset ontheir balance sheet and is associated with high costs. These costs can be determinedby applying a carrying charge. The carrying charge is further important in inventorymanagement as it is a component used in some order quantity determinationformulas. Theory suggests the most common methods for determination of thecarrying charge is by calculation, industry standards or experienced based. However,there is a lack of praxis studies concerning how companies actually do determineand apply carrying charge. Furthermore both theorists and industry expertsagree that carrying charge is not determined in the most correct way.The chosen research problem is: “How is the carrying charge determined in Swedishmanufacturing companies and what connections can be identified between thecarrying charge and material planning methods within these companies?”The overall aspiration with this thesis is to increase the knowledge of the carryingcharge in general, as well as to serve as a foundation on which further research onthe topic of carrying charge can be carried out in particular.As the main research approach for this thesis, a survey study design has been chosen.Empirical data has been collected by conducting telephone interviews among99 companies with different turnovers, selected by random sampling.The empirical results show that the carrying charge is not widely applied withinSwedish manufacturing engineering companies. Most companies in the sample determinetheir carrying by calculation. The most frequently included component wasthe cost of capital. The most common material planning methods among the sampleare order based material planning and re-ordering point system. Even thoughtheory suggests connections between the carrying charge and material planningmethods, the survey shows that few companies make use of these connections.Recommended for further research studies on the topic of the carrying charge is toapply a qualitative approach in order to gain a deeper knowledge or to includeother components in the carrying charge such as the environment.

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