Carrying cost

Carrying cost

In marketing, carrying cost refers to the total cost of holding inventory. This includes warehousing costs such as rent, utilities and salaries, financial costs such as opportunity cost, and inventory costs related to perishibility, shrinkage and insurance.Citation
last1 = Russell | first1 = Roberta S.
last2 = Taylor | first2 = Bernard W.
title = Operations Management: Quality and Competitiveness in a Global Environment, Fifth Edition
publisher = John Wiley & Sons
year = 2006
isbn = 0-471-69209
]

When there are no transaction costs for shipment, carrying costs are minimized when no excess inventory is held at all, as in a Just In Time production system.

Excess inventory can be held for one of three reasons. Cycle Stock is held based on the re-order point, and defines the inventory that must be held for production, sale or consumption during the time between re-order and delivery. Safety Stock is held to account for variability, either upstream in supplier lead time, or downstream in customer demand. Psychic Stock is held by consumer retailers to provide consumers with a perception of plenty.

References


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  • carrying cost — ➔ cost1 * * * carrying cost UK US noun [C] ► ACCOUNTING, COMMERCE the cost of storing goods before they are sold: »Pushing the ownership of inventory backwards to the supplier reduces inventory carrying costs for the customer. ► ACCOUNTING… …   Financial and business terms

  • Carrying Cost Of Inventory — This is the cost a business incurs over a certain period of time, to hold and store its inventory. Businesses use this figure to help them determine how much profit can be made on current inventory. It also helps them find out if there is a need… …   Investment dictionary

  • carrying cost — noun the opportunity cost of unproductive assets; the expense incurred by ownership • Syn: ↑carrying charge • Hypernyms: ↑opportunity cost …   Useful english dictionary

  • carrying cost — The cost of holding stock from the date of receipt to the date of disposal, or for any other specified period. These costs include warehousing, insurance, and security …   Accounting dictionary

  • cost of possession — ˌcost of posˈsession noun costs of possession PLURALFORM [countable] ACCOUNTING another name for carrying cost * * * cost of possession UK US noun [C] ► CARRYING COST( …   Financial and business terms

  • carrying charge — For physical commodities such as grains and metals, the cost of storage space, insurance, and finance charges incurred by holding a physical commodity. In interest rate futures markets, it refers to the differential between the yield on a cash… …   Financial and business terms

  • Cost of carry — This article is about the financial term. For the marketing term, see Carrying cost. The cost of carry is the cost of carrying or holding a position. If long, the cost of carry is the cost of interest paid on a margin account. Conversely, if… …   Wikipedia

  • carrying charge — noun 1. charge made for carrying an account or for merchandise sold on an installment plan • Hypernyms: ↑charge 2. the opportunity cost of unproductive assets; the expense incurred by ownership • Syn: ↑carrying cost • Hypernyms: ↑opportunity cost …   Useful english dictionary

  • cost — The opposite of revenue. An expense that reflects the price of purchasing goods, services and financial instruments. A cash cost means that cash is given up today to the purchase. Also, the purchase price of an investment, which is compared to… …   Financial and business terms

  • carrying — / kæriɪŋ/ noun transporting from one place to another ● carrying charges ● carrying cost …   Marketing dictionary in english

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