DEFINITION:  Inventory holding costs (IHC) are the total landed impact of holding inventory.  These include: 

  • Cost of capital
  • Cost of space, electricity, and other services
  • Handling costs
  • Risk of obsolescence, loss or damage.

Inventory costs will usually be on the order of 15-25% the total value of inventory.  These will also be broken down into an amount that is fixed and variable.  Fixed is for the amount of inventory that each facility must maintain.  This can also be known as cycle stock.  Then there is a variable quantity, this is usually the safety stock, it is an amount that increases with the amount of volume demanded of a facility.



MODELING INVENTORY COSTS (manual):

  1. First get a good number of how much inventory costs you have at a given location.
  2. Select the location and open the inspector.
  3. Add two activities both called "inventory" or  any other term that you wish
  4. Make one cost fixed and use the value you calculated as your cost of cycle stock.
  5. Make the other variable (per unit) and give it a cost per unit of flow to represent the increase in cost due to the increase in flow through a facility.

MODELING INVENTORY COSTS (import):

  1. First get a good number of how much inventory costs you have at a given location.
  2. Open up your import file or model maker nd select the "Activities" tab
  3. Add two activities both called "inventory" or  any other term that you wish
  4. Make one cost fixed and use the value you calculated as your cost of cycle stock.
  5. Make the other variable (per unit) and give it a cost per unit of flow to represent the increase in cost due to the increase in flow through a facility.