INVENTORY CARRYING COST

STUDENT FIRST NAME STUDENT LAST NAME STUDENT NUMBER

(IN CAPITAL) (IN CAPITAL)

1 JUAN GONZALEZ C0712484

2 SALMAN YASSIN C0720930

3 BRENO DUARTE TIRADO C0723202

4 ALEKSANDRS IGNATOVS C0714032

5 LIBIN AUGUSTINE C0719205

 Inventory Carrying Cost

• Inventory Carrying Cost is best described as the cost that,

over a period of time, a business will incur to hold on to and store its inventory.

• Inventory Carrying Cost is described often as a percentage of the value of a

company’s inventory.

• A company’s Inventory Carrying Cost can be categorised in to four major costs.

1. Capital costs
2. Storage costs
3. Service costs
4. Inventory risk costs
What does Inventory Carrying Cost mean?

• Inventory carrying cost indicates a particular percentage of the inventory cost, such
as; depreciation, taxes, salaries, insurance, storage, opportunity cost.

• Management and analysts use this KPI metrics to find out the possible profit can be
made based on current inventory.
 Importance Of KPI On A Firm's Finance

• Inventory KPIs can assist with maintaining the current level of productivity
and it can help to boost up the business.

• Inventory is typically shown as the largest share of current assets on the balance sheet.

• The cost of inventory consists of total costs related with the inventory handling operations.
These costs include:

1. Opportunity cost of the money tied up in the purchased inventory

2. Storage space for inventory
3. Transportation or handling expenses
4. Depreciation and obsolescence
How can companies measure and monitor
Inventory carrying cost?
• Often the costs are computed for a year and then expressed as a percentage
of the cost of the inventory items. For example, a company might express the
holding costs as 20%. If the company has $300,000 of inventory cost, its cost of
carrying or holding the inventory is estimated to be $60,000 per year.

• Inventory carrying rate * Average inventory value

• Strategies to optimize carrying cost:

1. Work on inventory reduction

2. Just-in-time inventory (JTI)
3. Calculate an appropriate amount of safety stock inventory
4. Use an accurate reorder point formula
Sample
Inventory
Carrying Cost
Calculation
 References
• Dear Systems. (2017, September 17). Retrieved from Inventory KPI: What It Is and the Most
Important KPIs to Measure: https://dearsystems.com/inventory-software/blog/inventory-
kpi/
• Investopedia. (n.d.). Retrieved from Carrying cost of inventory:
https://www.investopedia.com/terms/c/carryingcostofinventory.asp#ixzz5TxtsPPbB
• Junior. (2017, February 19). Unleashed Software. Retrieved from Three reasons to
understand your inventory carrying costs:
https://www.unleashedsoftware.com/blog/three-reasons-understand-inventory-carrying-
costs
• Maha Muzumdar, A. Z. (2015, July 2015). Supply Chain 24/7. Retrieved from Secrets to
Successful Order Fulfillment:
https://www.supplychain247.com/article/secrets_to_successful_order_fulfillment
• Mbaskool.com. (n.d.). Retrieved from Inventory Carrying Cost:
https://www.mbaskool.com/business-concepts/operations-logistics-supply-chain-
terms/15270-inventory-carrying-cost.html
• Murray, M. (2018, July 14). The Balances MB. Retrieved from Supply Chain Specifics:
https://www.thebalancesmb.com/inventory-carrying-costs-2221373
• Tradegecko. (n.d.). Retrieved from Introduction to carrying costs:
https://www.tradegecko.com/learning-center/introduction-to-carrying-costs
THANK YOU!