Carrying cost is the total cost of holding and storing inventory. It includes various expenses such as storage, insurance, taxes, depreciation, and obsolescence. Obsolescence is the loss of value or usefulness of inventory due to changes in technology, customer preferences, or market conditions. Obsolescence is considered a carrying cost because it reduces the potential revenue that can be generated from selling the inventory. Setup, transportation, and scrap rate are not carrying costs, but rather order costs, logistics costs, and quality costs respectively. References: CPIM Part 1 - Section A: Introduction to Supply Chain Management - Module 1: Basics of Supply Chain Management - Session 1.4: Inventory - Inventory Costs. CPIM Part 1 Study Guide, pp. 1-32 - 1-33.
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