Inventory carrying/holding costs

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  Holding costs are all of the expenses a company incurs to hold inventory items over a period of time before they are used to fill orders.  Generally speaking, Inventory carrying/holding costs are the costs you incur as a result of holding inventory.  It is most often described as a percentage of your inventory value.  The percentage is often unique to organizations and includes the amount of capital invested in inventory as well as depreciation, space occupied, insurance and opportunity costs.  Inventory carrying or holding costs generally account for 15-30% of a business’s total inventory value.

Inventory Carrying Costs Template

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  This makes it all the more important to watch your holding costs.  Inventory holding costs are directly related to the volume of inventory you hold.  There are three different elements of inventory holding costs, which are:

1. Capital Costs.
2. Storage Costs.
3. Risk Costs.  ​

Challenge

• Of the three elements included in holding costs; capital costs, storage costs and risk costs which do you think should have the highest priority in monitoring? Why?  Share your thoughts in the comments section below and receive a coupon to one of Lean Strategies International LLC's courses.

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