The Hidden Fees Behind Inventory Carrying Costs

By Logan Wamsley

No manufacturer is under the delusion that warehousing inventory for any length of time comes without inherent costs. But as terms continue to increase, many manufacturers are surprised by just how quickly they accumulate, and how many different forms they take.

Inventory carrying costs represent somewhat of a catch-all term, and can be associated with a variety of hidden fees that may appear. Some may be expected, while others may not. Below are a just a few of the forms inventory carrying costs may take:

Storage Space Costs

If the manufacturer has the means and infrastructure to store inventory onsite, this may be the most obvious cost. This includes the costs needed for warehouse rent or mortgage, as well as any necessary lighting, heating, air conditioning, humidity control, or other related climate-control costs. Additionally, manufacturers would be wise to factor in the intangible opportunity costs associated with using limited warehousing space for storage; every square foot needed for storage is space that could be otherwise used for increasing production.

Taxes

It is not uncommon for local authorities to issue a tax on the level of inventory in a warehouse. The more inventory, the higher the tax will be.

Insurance Premiums

Especially in higher-risk markets, the value of insurance on critical inventory cannot be overstated. Nevertheless, inventory insurance is a cost that must be factored into any calculation of carrying costs. Costs can vary drastically depending on the type of goods in question, the location of the goods, and the quantity.

Handling Costs

More sensitive inventory will require more specialized equipment and training for proper handling and (if necessary) shipping. Raw die and wafer, for example, is incredibly moisture sensitive and requires the use of a desiccant dry cabinet for strict humidity. This can be a significant expense, especially for small and medium-sized manufacturers. Handling equipment such as ESD anti-static gloves, mats, and covers must also be considered.

Administration Fees

Not to be overlooked, administration fees for inventory, which include the wages of a cost accounting staff, can become a significant burden and can accumulate if not regularly accounted for.

Interest Costs

If the inventory is purchased with borrowed funds, manufacturers must make note of accumulating interest. This can often be a tax-deductible expense, but too much debt can increase the risk of corporate failure.

Partstat Has the Solution

Together, these costs calculated annually can rise as high as 30% the original cost of the inventory. Partstat inventory management solutions, however, enable customers to save an average of 42% in annual inventory carrying costs. Some of the most recognized OEMs and EMS providers in the world are counted among Partstat’s customers, and each has taken advantage of one of the many options available for long-term inventory storage.