Capital Intensive Concept

Concept

Capital Intensive parts are have:

  • High purchase cost
  • Long inventory cycle times
  • High inventory cost

Example

We stock Bulldozer belts for Caterpillar, Hitachi, Komatsu, etc. The average cost per belt is $30,000 . We sell them at an average sales price of $50,000 .

Our inventorycycle time per belt is approximately 1 year and our cost of capital is 12% .

Thus our inventory cost incurred per item is 0.12*30,000 or $3600 .

Each belt ties up on average $30,000 in capital and we incur an inventory cost of $3600 . This is a Capital Intensive item.

Related Concepts, Formulas, and Guides

Service Parts Profit Optimization

For more concepts, guides, and formulas related to Service Parts Profit Optimization visit the Firefly Semantics Service Parts Profit Optimization Help Center:

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Ole Ersoy

Ole Ersoy

Founder of Firefly Semantics Corporation