The cost of storing materials along with related salaries, transportation, handling, taxes, insurance, depreciation, and shrinkage could add up to 10-30 percent of total inventory costs, according to Investopedia.

One major manufacturer, for example, stores and uses alumina. Their carrying costs are $1.50 per year per 100 pounds. They consume 8 million pounds which means their carrying costs are $120,000 per year. They constantly monitor inventory levels to ensure their funds are not tied up in inventory while ensuring production continues.

Reducing carrying costs can boost profit. Managers can base inventory on the economic situation (when the currency depreciates, purchasing power decreases). Properly handling inventory can reduce the cost of storing products. An understanding of quantity and timeline might open opportunities for long-term agreements with suppliers as well.

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