Costs of Holding Stock

Holding lots of stock can cost the company money in one or more of the following ways:

• Spoilage costs. For example, quality will decrease in the case of perishable goods, and goods held for too long may become outdated and difficult to sell.
• Insurance and security costs.
• Theft of the stock by employees or customers.
• Storage can be expensive. For example, heating, lighting, labour, refrigeration and warehousing.
• Stocks tie up money which could be used elsewhere. For example, new machinery could be bought, factory space could be used more productively, or money could be invested elsewhere. Any of these uses might earn the business more money.