Inventory holding cost is a key component of the overall cost of inventory and is an important factor to consider when managing inventory. It is defined as the total cost associated with storing and maintaining inventory, including costs such as storage, insurance, taxes, and shrinkage. Inventory holding cost is typically calculated as a percentage of the total inventory value, and is used to determine the optimal level of inventory for a business. It is important to note that inventory holding cost does not include the cost of purchasing inventory, as this is a separate cost. By understanding the inventory holding cost of a business, managers can make informed decisions about the amount of inventory to hold, which can help to reduce overall inventory costs and improve efficiency.
