One element of holding costs is risk. Risk costs are the risk that is assumed when inventory is acquired. In addition to this risk costs refer to loss of inventory value. This is often referred to as the shrinkage that occurs within inventory.
Storage costs are another important element of your holding costs. When you think of storage costs you should think of any of the resources that you use to handle and store your inventory. These costs may be direct or indirect money spent on the storage of your goods. Storage costs can include costs for warehousing, warehouse equipment, space, rent, electricity, software, depreciation and warehouse personnel.
Have you ever wanted something to snack on really bad, so you jump up head to the store and when you get there they are fresh out of inventory? Have you ever made the decision to purchase a new vehicle and you go to the dealer and the vehicle you want isn’t there so you go home and order it online? Inventory stock out costs. These are both examples of inventory stock out costs. Stockouts occur when the inventory you have on hand is not enough to fulfill the customers demand needs. Likewise a stock out might be when there is inventory, but the inventory is not what you wanted.
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