What Is Inventory Carrying Cost?
Understand how Inventory Carrying Cost fits into the supply chain
Inventory carrying cost is the cost associated with the holding and managing of inventory. These costs can consist of the following:
- Opportunity Cost: The value of one choice over another and what must be given up to obtain something else.
- Shrinkage: The loss of inventory due to theft, damage or loss.
- Insurance and Taxes: Insurance provides inventory protection, while taxes are the cost of having and holding inventory. Both cost the inventory holder money.
- Total Obsolescence for Raw Material, Works in Process and Finished Goods Inventory: Inventory that is no longer useable or saleable due to being out-of-date or obsolete.
- Channel Obsolescence: Materials that become out-of-date or obsolete while in a distribution channel.
- Field Service Parts Obsolescence: Inventory that becomes out-of-date or obsolete while being stored within a warehouse or distribution center.
- Inventory Cycle Counting: See Cycle Counting