Summary
This article walks through what holding cost is and how it is calculated
Applies To
All Items in StockIQ that have an order policy of 'Order Point' (as a result have EOQ calculated)
Process
Holding Cost is the calculated theoretical cost of holding a given quantity of an item in inventory. This is also sometimes referred to as the 'Carrying Cost'.
Holding cost in StockIQ is usually associated with a quantity of inventory, since we can calculate the length of time that inventory will be held based on its forecasted usage, and along with your Percent Holding Cost from the EOQ worksheet, a holding cost for a particular quantity can be calculated.
Your Annual Percent Holding Cost is calculated by factors in your EOQ Settings setup page.
The calculation for holding cost is as follows:
Holding Cost = (qty * cost * AnnualPercentHoldingCost) * (qty / dailyusage / WorkdaysPerYear)
Where THC is your annual percent holding cost. The workdays per year term is used to convert the annual holding cost percent to a daily holding cost percentage, which can then be compared to the daily usage of the item.
Often an annual holding cost can be a useful benchmark to compare holding costs for different items:
Annual Holding Cost = Average Quantity On Hand * cost * THC