Lapasar
Logistics & Fulfilment

Carrying Cost

Also known as: Holding cost, Inventory carrying cost

Carrying cost is the total cost of holding inventory over a period, including storage, capital, insurance, handling and the risk of obsolescence.

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Carrying cost captures everything it costs to keep stock on hand rather than the purchase price of the goods themselves. Components include warehouse space, the capital tied up in inventory, insurance, handling and damage, and losses from obsolescence, spoilage or shrinkage. It is often expressed as an annual percentage of inventory value.

Understanding carrying cost is central to inventory decisions: holding more stock improves availability but raises carrying cost, while holding less frees cash but risks stockouts. It is a key input to economic order quantity and reorder-point calculations, and it explains why reducing dead stock and rationalising SKUs improves working capital.

Frequently asked questions

What is carrying cost?
Carrying cost is the total cost of holding inventory over a period — including storage, tied-up capital, insurance, handling and obsolescence — usually expressed as a percentage of inventory value.
Why does carrying cost matter?
It shapes how much stock to hold: more inventory improves availability but raises carrying cost, so balancing it against stockout risk is central to inventory and working-capital decisions.

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