Capital Intensive | Concept

Ole Ersoy
Mar - 22  -  1 min

Capital Intensive parts have:

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

Examples

We stock Bulldozer belts for Caterpillar, Hitachi, Komatsu, etc.

The average purchase cost per belt is $30,000.

We sell them at an average sales price of $50,000 .

Our inventory cycle 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.