What Is a Carrying Cost?

Inventory management is a broad topic covering a lot of ideas and tasks. Sometimes I use keywords and phrases without realizing that they can seem like a foreign language to people who are just learning about inventory management. So in a series of blog posts I’ll explain what some common inventory management terms mean so you can increase your vocabulary and we’ll be on the same page when I talk about these things. I’ll start by defining Carrying Costs. Carrying Cost – The amount of money a company spends to keep total inventory safe and stored over a certain length of time. It is also known as holding cost and inventory cost. Carrying costs are made up of many smaller costs, including:

• Total inventory value depreciation over time
• Employees’ time and wages
• Insurance
• Security
• Storage cost, space, heating, cooling, rent, etc.
• Taxes

These costs are important to pay attention to because if you’re spending a lot of money storing, protecting, and insuring your total inventory, you could be missing out on other opportunities. In this vein, the carrying cost could also be viewed as an opportunity cost. You can use inventory management software to keep your carrying costs to a minimum. It helps you optimize your inventory level so you don’t have too many or too few finished goods on hand. Keep coming back to the Fishbowl Inventory Blog to learn more valuable inventory management terms.