Inventory costs

Inventory costs are costs that arise from the movement of product goods in the warehouse or distribution center. They are a key figure from business management. Inventory costs in general include, for example, warehouse rent, personnel, energy, and insurance costs. They are subdivided into inventory-holding costs, that is, the pure storage of goods, and the costs that arise from the inventory turnover, that is, the processing of stocks.

The calculation of inventory costs starts at the product planning stage and interlocks with the best offer from the supplier in intralogistics – an attractive warehousing cost rate for the storage of the corresponding product goods. The rate is part of the final product price and is decisive for the manufacturer with regard to subsequent sales. The lower it is, the more attractive the price is later.

Intralogistics as service provider for product manufacturers

The inventory costs are made up of the product of the inventory value and the inventory cost rate.

Formula: Inventory costs = Inventory value x Inventory cost rate

The stock value is the total material value of a manufacturer, which is available in the warehouse of the supplier or his intralogistics in the form of stock. The intralogistics manager often has several manufacturers as customers in his portfolio and manages the resulting costs closed in each case.

Since the circulation of goods in the warehouse is dynamic, depending on the demand of the market, it is always either the average stock value related to a concrete time frame (e.g. one year) or the stock value on a particular key date (e.g. inventory).

Intralogistics acts as a service provider for the manufacturer and offers him a storage option for his goods, whose costs are based on the storage cost rate for the corresponding product. The inventory cost rate is expressed as a percentage and is the proportion of inventory costs that is included in the product value. For example, if the inventory cost rate is ten percent, for a product value of 200 Euros, 20 Euros of the total value should be calculated for inventory. Since the inventory cost rate is calculated according to the material value and the effort in storage (e.g. cooling, care during removal, securing), the controller of the corresponding warehouse provides the individual inventory cost rate for the corresponding product storage to the product manufacturer.

The inventory cost rate is a calculative key figure from business administration. For this reason, the costs budgeted for warehousing must be offset against the actual costs incurred in the warehouse. This is highly relevant because only then it becomes apparent how high the actual costs incurred in the warehouse are. Thus, if one speaks of the inventory costs calculated in advance, these must be differentiated later in the real scenario into variable costs and fixed costs.

Inventory costs: complex dependencies between variable costs and fixed costs

Fixed costs are the costs that remain the same regardless of the inventory and are usually already included in the inventory cost rate. These include the costs for the depreciation of the conveyor systems and the rental costs for the warehouse. Variable costs or process costs are costs that arise from handling the goods in the warehouse. For example, if an order from the ERP system is processed, stocks must be picked, the order packed at the packaging station, and then shipped. Whenever an order is individual, specification costs are incurred in addition to the simple handling (storage and retrieval of entire unit loads). In detail, these are, for example, costs caused by quality assurance measures in goods receipt or personnel and energy costs caused by two-stage picking. Variable costs, as well as fixed costs, are usually incurred per stored unit load.

Optimal order quantity

In logistics planning, the inventory cost rate is also used to determine the optimum order quantity. The optimum order quantity is the inventory quantity whose inventory costs are lowest when the readiness to deliver is taken into account. On the one hand, this means that more stock causes more inventory costs; on the other hand, the inventory quantity must not cause a delivery bottleneck. In the functions of the warehouse, this is described as a backup function.


Inventory costs are investment costs before the final sales transaction and must always be carefully calculated. To calculate the inventory costs, the controller uses the current intralogistical data provided by the ERP and WMS systems and breaks down the costs incurred in the warehouse into their components. The distinction between variable costs and fixed costs is crucial, as these ultimately determine the actual warehousing cost rate.

Complex dependencies between variable and fixed costs, as well as the dynamics of the market, therefore require a clear calculation of inventory costs. The manufacturer’s economic calculation must be offset against the actual costs in the warehouse (variable costs and fixed costs). This enables the manufacturer to achieve the potentially highest possible profit. The customer, in turn, gets the best price through clean cost management.

For information on the digital recording of stock movements within a warehouse, see Stock Management in Intralogistics.

Teaser picture: Dennis Skley (Copyright: CC BY-ND 2.0)

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