The Procurement Glossary » Inventory Carrying Cost

Inventory Carrying Cost

Inventory & Logistics

Also known as: Holding Cost

Definition

The total cost of holding inventory — capital tied up, storage, insurance, obsolescence and shrinkage.

Explanation

Carrying cost, often 15–30% of inventory value per year, is the hidden price of holding stock. Recognising it drives leaner inventory, faster turnover and models like JIT and consignment that shift or reduce the burden.

Example

At 25% carrying cost, holding RM2m of stock costs RM500,000 a year in capital, space and risk.

Related terms

• Inventory — The goods and materials a business holds for use, sale or production.
• Working Capital — The money tied up in day-to-day operations — broadly current assets (inventory, receivables) minus current liabilities (payables).
• Inventory Turnover — How many times inventory is sold or used and replaced over a period — a measure of inventory efficiency.
• Obsolescence — The loss of value when inventory becomes outdated, unusable or unsellable.

Frequently Asked Questions

What is Inventory Carrying Cost?

The total cost of holding inventory — capital tied up, storage, insurance, obsolescence and shrinkage. Carrying cost, often 15–30% of inventory value per year, is the hidden price of holding stock. Recognising it drives leaner inventory, faster turnover and models like JIT and consignment that shift or reduce the burden.

Can you give an example of Inventory Carrying Cost?

At 25% carrying cost, holding RM2m of stock costs RM500,000 a year in capital, space and risk.

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