Determining Base Manufacturing Costs across Foreign Sourcing Locations
Base foreign manufacturing costs hinge on automated machine cycle times, localized substrate procurement, and tariff transformation rules rather than labor rates.
Transit Inventory Capital
Meaning
Value of products that have left the shipping point but have not yet reached the destination where they can be sold or used. Financial controllers track transit inventory capital to measure the investment tied up in goods that are currently on trucks, ships, rail cars or planes. This asset represents a large portion of the working capital for companies with long global supply chains.
Accounting Status
Ownership of the goods usually transfers at the point of departure under common shipping terms. While transit inventory capital appears on the balance sheet as an asset, it is not available for immediate production or sale. This lack of liquidity forces companies to manage their lead times carefully to avoid excessive capital being trapped in the logistics network.
Risk Management
Extended transport times increase the exposure to damage or loss during the journey. High values of transit inventory capital often require additional insurance coverage to protect the investment from maritime accidents or port delays. Reducing the time between the factory gate and the warehouse dock is a primary way to improve the cash conversion cycle.
Landed Cost
Total expenses associated with the shipment include the interest on the money tied up in these goods. The transit inventory capital cost is a factor in deciding between cheaper sea freight and faster air transport for high-value electronics.