Inventory carrying cost
Also called carrying cost, holding cost
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is inventory carrying cost?
Inventory carrying cost is the total cost of holding inventory over time: the cash tied up, space, insurance, taxes, handling, damage and obsolescence. Distributors state it as a yearly percentage of inventory value.
Inventory carrying cost example
A buyer is offered 5% off for taking a full year’s supply of a slow-moving part at once. If the part sells evenly, the extra stock averages about half the purchase over the year, so the deal pays only if half a year’s carrying cost on the full amount is less than the 5% saved, and the part isn’t likely to go dead first.
Related terms
- Economic order quantity (EOQ)Economic order quantity (EOQ) is the order size that minimizes the combined cost of ordering and holding an item with steady demand.
- Inventory turnsInventory turns is the number of times a distributor sells through its average inventory in a year: annual COGS ÷ average inventory at cost.
- Dead stockDead stock is inventory that hasn’t sold for a long time and probably won’t sell at its normal price.
- Gross margin return on inventory investment (GMROI)Gross margin return on inventory investment (GMROI) is the gross profit a distributor earns for each dollar it has invested in inventory.
