Inventory Carrying Cost
Inventory carrying cost is the annual cost of holding spare-parts inventory, including capital, storage, insurance, handling, deterioration, and obsolescence.
What this term means in maintenance
Inventory carrying cost is the annual cost of holding spare-parts inventory, including capital, storage, insurance, handling, deterioration, and obsolescence.
Cost elements
Carrying cost may include:
- Cost of capital
- Warehouse space
- Insurance
- Handling
- Cycle counting
- Damage
- Shelf-life loss
- Obsolescence
- Security
Basic estimate
Annual carrying cost = Average inventory value × Carrying-cost percentage
Practical example
Average inventory value is 2,000,000 and the approved carrying rate is 20%.
Estimated annual carrying cost = 400,000
Maintenance context
High carrying cost must be balanced against stockout consequence and equipment downtime.
Common mistake
Reducing inventory based only on carrying cost can remove critical protection.
Related concepts
Related maintenance terms
Keep exploring connected CMMS, reliability, and maintenance planning terms.
Inventory Turnover
Inventory turnover measures how often inventory value is used or replaced during a defined period.
Dead Stock
Dead stock is inventory with no expected future use because of obsolescence, equipment removal, duplication, damage, or excessive quantity.
Total Cost of Ownership
Total Cost of Ownership is the complete direct and indirect cost associated with owning and using an asset, system, product, or service.
Inventory Carrying Cost FAQs
- What is inventory carrying cost?
The annual cost of capital, storage, insurance, handling, damage, shelf life, and obsolescence.
- How is it estimated?
Average inventory value multiplied by an approved carrying-cost percentage.
- Should carrying cost drive all stock reduction?
No. Stockout and downtime risk must be considered.