Holding stock is expensive and estimates on the annual cost of holding stock vary from 25% to 75% of the stock value. These costs are made up of four broad cost areas: the capital cost of the money tied up in stock; the costs of servicing that stock, such as insurance and materials handling; the warehouse and storage costs; and the cost of damage, losses and shrinkage. The capital cost of the stock includes the opportunity cost of what that money could have done if it wasn’t sitting on a pallet, and may be estimated at about 10% per annum. Taxes and insurance will contribute a further 5%, warehousing and materials handling will contribute a further 10%, stock control systems and administration 5% and loss, obsolescence and theft will add a further 2.5%. This broad generalisation suggests that up to a third of the annual cost of stock is spent on maintaining it. See also Muda and Stock Control.« Back to Glossary Index
Stock, Carrying Cost
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With over 800 Procurement specific terms (and growing) you will find everything you need to know or thought you knew about the Procurement function. Our aim is to provide you with a comprehensive list collated from the Comprara Groups hub of training and consulting source materials.The Procurement Glossary has been compiled by industry expert Paul Rogers.