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Inventory Holding Costs
Definition
The total cost associated with storing and maintaining inventory over time, including expenses related to warehousing, insurance, depreciation, spoilage, and capital tied up in unsold goods. Inventory holding costs impact profitability and cash flow.
How It's Calculated
Typically expressed as a percentage of inventory value, including components such as:
Storage costs + carrying costs + risk costs (e.g., spoilage, obsolescence)
Example
A frozen food brand experiences increased inventory holding costs due to excess stock requiring extended freezer storage, leading to higher warehousing expenses and risk of product expiration.
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