Inventory Carrying Cost Calculator

How this is calculated

Carrying cost is the sum of four components, each expressed as a percent of the average inventory value you hold: the opportunity cost of capital tied up in stock, the cost of storing and handling it, insurance and taxes, and the risk of shrinkage, damage, and obsolescence. Add those percentages to get a total carrying rate, then apply it to your average inventory value.

Inventory turns show how many times you cycle through your average inventory in a year, and days of supply is the same idea expressed in days. Higher turns generally mean less capital sitting idle and lower total carrying cost for the same throughput.

What to keep in mind

• Typical rates run 20% to 30% per year. Many operations land in that band once all four components are counted, though the mix varies widely by industry, product value, and how perishable or fast-moving the goods are.
• Component percentages are estimates. Capital cost should reflect your real cost of capital or hurdle rate, not a placeholder. Storage, insurance, and risk depend on your facilities and product.
• Average inventory matters. A single snapshot can mislead if inventory swings seasonally. Use a true average across the year where you can.
• This is a directional model. It sizes the cost of holding stock to inform decisions; it is not a substitute for detailed cost accounting.

To act on this, right-size order quantities with the economic order quantity calculator and set buffers with the safety stock and reorder point calculator. For the wider operating picture, see the lean manufacturing guide.