What is Carrying Costs of Inventory?
This includes all costs associated with holding inventory, such as warehousing costs, labor costs, insurance, taxes, and depreciation.
How to calculate Carrying Costs of Inventory?
Carrying Cost = (Inventory Holding Sum * Carrying Cost as a % of Inventory Value) / Time Period
What is the business impact of Carrying Costs of Inventory?
High carrying costs can negatively impact a company's profitability, while low carrying costs might indicate efficient inventory management.
Industry benchmark for Carrying Costs of Inventory
Typically, carrying costs are expected to be around 20-30% of a company’s total inventory value annually.
How to improve Carrying Costs of Inventory?
- Implement just-in-time inventory to reduce storage time.
- Improve demand forecasting to minimize overstocking.
- Optimize warehouse layout for efficient use of space and ease in goods movement
- Minimize order lead times to increase inventory velocity and save costs.
- Utilize advanced analytics for better insight into inventory status and forecasting.
- Implement cross-docking to reduce storage time for items that are quickly shipped out again.
- Implement automated storage and retrieval systems (AS/RS) to reduce labor costs.