Checklist of Hidden Cost of Holding Stock

When looking at your stock levels, make sure you are familiar with all the hidden costs involved in keeping too much stock on hand.

These costs include the following:

  • Financing cost: This is the interest cost associated with holding the amount of stock level in your shelves.

  • Opportunity cost: This is the cost related to the income or revenue you would receive from using the same amount of money tied up in stock in another investment, or other opportunity.

  • Insurance cost: This is the cost that comes about because you are carrying a higher stock value and therefore a higher cost in premium.

  • Obsolescence cost: This is the cost that comes about with holding a lot of stock and finding later that consumers do not want some of the stock because it is out of date or no longer fashionable.

  • Shrinkage cost: The fact is, the longer the item is sitting in the warehouse unsold, the greater the potential for them to be spoiled, damaged, broken, or lost through theft, and this is a definite cost.

  • Storage cost: The greater the amount of stock held, the greater the storage requirements and therefore the greater the cost of rent or other expenses involved in that space.

Return to 'Checklist' menu


Back to Menu