Inventory Holding
Carrying costs and Days of Supply (DOS).
The Hidden Leaks in Inventory
Most enterprises significantly underestimate their Inventory Holding Cost. While physical warehouse rent is a visible expense, the LARGEST component is typically the Opportunity Cost of Capital�the potential revenue lost by having liquidity tied up in physical stock rather than being deployed in market expansion or debt reduction.
Typical Cost Breakdown (Standard 25% Rate):
- Capital Cost (15%): The interest expense on loans or the target ROI for tied-up shareholder funds.
- Inventory Risk (6%): Accumulation of shrinkage, physical damage, and the risk of the goods becoming technologically or fashionably obsolete.
- Storage & Admin (4%): Rent, HVAC, warehouse staffing, and specialized insurance premiums.
A high Days of Supply (DOS)�for example, exceeding 60 days for non-seasonal FMCG�indicates an inefficient supply chain that is draining cash flow. Conversely, a DOS below 7 days may result in frequent stockouts and loss of customer loyalty. Professionals use this tool to find the 'Golden Mean' for their specific industry vertical.