# Nearshore vs Asia Pipeline Inventory Carrying Cost Calculator

> Source: https://netray.co/tools/latam-nearshore-inventory-pipeline-carrying-cost-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Prices the inventory sitting in transit and in safety stock on a nearshore lane versus an Asian lane, using transit time, demand variability and carrying rate.

## Category

supply-chain

## Region

Latin America

## Industry

Nearshoring manufacturing

## Audience

- Supply chain planner
- Controller
- Buyer
- Plant manager

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Annual demand

**Key:** annual_units

**Type:** number

**Default:** 600000

**Min:** 0

**Step:** 10000

**Unit:** units

#### Landed unit cost

**Key:** unit_cost

**Type:** number

**Default:** 14

**Min:** 0

**Step:** 0.5

**Unit:** USD

#### Nearshore total lead time

**Key:** near_days

**Type:** number

**Default:** 10

**Min:** 1

**Max:** 60

**Step:** 1

**Unit:** days

**Help:** Order to receipt including border crossing.

#### Asia total lead time

**Key:** asia_days

**Type:** slider

**Default:** 55

**Min:** 20

**Max:** 120

**Step:** 1

**Unit:** days

**Help:** Order to receipt including ocean, port and inland legs.

#### Std deviation of daily demand

**Key:** daily_sigma

**Type:** number

**Default:** 400

**Min:** 0

**Step:** 10

**Unit:** units per day

#### Service level

**Key:** z

**Type:** select

**Default:** 1.645

**Options:**

##### 90%

**Value:** 1.28

##### 95%

**Value:** 1.645

##### 99%

**Value:** 2.326

#### Annual carrying rate

**Key:** carry_pct

**Type:** number

**Default:** 22

**Min:** 0

**Max:** 60

**Step:** 1

**Unit:** %

**Help:** Capital, storage, insurance and obsolescence.

**Outputs:**

#### Average daily demand

**Key:** daily_demand

**Expr:** annual_units / 365

**Format:** number

#### Pipeline value, nearshore

**Key:** pipe_near

**Expr:** daily_demand * near_days * unit_cost

**Format:** currency

#### Pipeline value, Asia

**Key:** pipe_asia

**Expr:** daily_demand * asia_days * unit_cost

**Format:** currency

#### Safety stock value, nearshore

**Key:** ss_near

**Expr:** z * daily_sigma * sqrt(near_days) * unit_cost

**Format:** currency

#### Safety stock value, Asia

**Key:** ss_asia

**Expr:** z * daily_sigma * sqrt(asia_days) * unit_cost

**Format:** currency

#### Inventory released by nearshoring

**Key:** inv_diff

**Expr:** pipe_asia + ss_asia - pipe_near - ss_near

**Format:** currency

**Primary:** true

#### Yearly carrying cost saved

**Key:** carry_saving

**Expr:** inv_diff * carry_pct / 100

**Format:** currency

**Primary:** true

**Chart:**

#### Yearly carrying saving vs Asia lead time

**Type:** line

**X:** asia_days

**From:** 20

**To:** 120

**Steps:** 26

**Series:**

- carry_saving

**Disclaimer:** Assumes constant demand and lead time variability captured only through demand variation. It does not model supplier lead time variance, cycle stock or MOQs. Planning estimate.

## Content

**Intro:** Shorter lanes release cash. This calculator quantifies the inventory in the pipe and in safety stock for a nearshore lane in Mexico or Latin America against a long lane from Asia, and converts the difference to a yearly carrying saving.

**Sections:**

#### How to use it

**Body:** Enter annual demand and landed unit cost, then total lead times for both lanes, counting from the purchase order to the dock. Add the daily standard deviation of demand and the service level you want, and your carrying rate. The tool gives pipeline value, safety stock and the cash and yearly cost saved by moving to the shorter lane.

**Bullets:**

- Include booking, customs and inland legs in lead time.
- Use your own carrying rate, not a generic one.
- Check results for several service levels.

#### Formulas

**Body:** Pipeline inventory is average daily demand multiplied by lead time and unit cost, because that quantity is owned by someone but not yet usable. Safety stock is Z times the standard deviation of daily demand times the square root of lead time, valued at unit cost. The difference between lanes, multiplied by the carrying rate, is the yearly saving. Square-root scaling means safety stock falls more slowly than lead time.

#### Worked example

**Body:** Take 600,000 units a year at 14 dollars, a ten day nearshore lane and a 55 day Asia lane. Daily demand is about 1,644 units, so pipeline is about 230,000 dollars nearshore against 1.27 million from Asia. Adding safety stock at 95 percent service, the released inventory is roughly 1.1 million dollars and a 22 percent carrying rate makes the yearly saving about 240,000 dollars.

#### Common mistakes

**Body:** Mistakes include using only ocean transit days, forgetting that ownership of goods usually passes at the origin port, ignoring the larger lot sizes that long lanes force, and using a service level that is higher than the business needs. Remember to compare unit costs fairly: a nearshore part that costs more per unit may still win on total cost.

**Cta:** Netray can read lead times and demand variability from your ERP and calculate safety stock by item automatically.

**Faq:**

#### Why does safety stock use the square root?

**Answer:** Independent daily demand variations partly offset each other over a longer period, so variability grows with the square root of time, not linearly. This is a standard result in inventory theory when demand days are independent.

#### What counts as pipeline inventory?

**Answer:** Goods you own or are financially committed to that are in transit and cannot yet be used. If you pay at the origin port, ocean time counts, whether or not the goods show on your balance sheet at that point.

#### What carrying rate should I use?

**Answer:** Add cost of capital, storage, insurance, shrink and obsolescence. For many manufacturers it falls between 15 and 30 percent a year. Use finance's number rather than guessing.

#### Does this include supplier lead time variance?

**Answer:** No. Longer lanes also have more variable lead times, so the real saving from nearshoring is usually larger than this tool shows.

## Search terms

pipeline inventory calculator, inventory in transit carrying cost, nearshoring vs offshoring inventory, safety stock lead time calculator, Asia vs Mexico lead time cost, carrying cost of inventory calculator, nearshore inventory savings

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