Industrial Engineer Engineering and Management Solutions at Work

August 2013    |    Volume: 45    |    Number: 8

The member magazine of the Institute of Industrial and Engineers

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Target: Carrying costs

Reducing inventory yields savings opportunities, not guarantees

By Reginald Tomas Lee

As engineers and supply chain professionals, we are always looking to make sure we have the greatest positive impact. One area we deal with regularly is inventory. There are always pressures to manage and reduce it. Often, we are asked, "What is the cost to carry the inventory – the carrying cost?" We look for a simple way to calculate it by tying the carrying cost to the value of inventory. For instance, a company with $100,000 in inventory would spend $10,000 in carrying costs if the carrying cost is 10 percent of inventory value.

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