How to Reduce Inventory Carrying Costs Without Hurting Customer Service

Too much inventory ties up money. Too little inventory can mean missed sales and unhappy customers.

For growing businesses, finding the right balance isn’t always easy.

Excess stock increases storage expenses, creates the risk of obsolete products, and limits cash available for other business needs.

The goal isn’t simply to carry less inventory. It’s to carry the right inventory at the right time.

Why Inventory Carrying Costs Matter

Inventory costs extend beyond the price paid for products.

Research highlights the financial impact:

• 10%: The median inventory carrying cost as a percentage of inventory value, according to APQC.
• 45.6 days: The median inventory days of supply across 6,951 companies benchmarked by APQC.
• 8 times annually: The median inventory turnover rate across 5,349 companies, according to APQC.
• $1.7 trillion: The estimated annual global retail cost of inventory distortion, including overstocks and out-of-stocks, according to IHL Group’s 2026 study.

These figures highlight why inventory management matters for profitability and customer satisfaction. Benchmarks vary by industry, and the global retail estimate is not specific to Canadian businesses.

5 Ways to Reduce Inventory Carrying Costs

1. Improve Demand Forecasting

Review historical sales, seasonal patterns, and customer demand before placing new orders.

Better forecasting helps businesses avoid purchasing products that may sit in storage for months.

2. Identify Slow-Moving Inventory

Products that rarely sell take up valuable warehouse space and tie up working capital.

Regularly review aging inventory and identify opportunities to reduce excess stock.

3. Set Smarter Reorder Points

Ordering too early increases carrying costs. Ordering too late creates stock shortages.

Establish reorder points based on demand, supplier lead times, and appropriate safety stock levels.

4. Maintain Accurate Inventory Records

Inaccurate stock information can lead to unnecessary purchases and missed orders.

Regular cycle counts and connected inventory systems help maintain reliable information.

Learn more about how to fix inaccurate inventory.

5. Connect Purchasing, Sales, and Inventory

Disconnected systems make it difficult to understand what products are available, what’s selling, and what needs replenishing.

Connected ERP software helps businesses make purchasing decisions using more current information.

Our article on reducing order processing errors explains how connected business systems can improve accuracy.

How Acumatica Helps Manage Inventory Costs

Acumatica Cloud ERP connects inventory, purchasing, sales orders, and financial information.

Businesses can use its inventory management capabilities to monitor stock levels, automate replenishment, identify slow-moving products, and improve purchasing decisions.

Better inventory management also supports improved cash flow visibility by reducing unnecessary spending on excess stock.

Frequently Asked Questions

What are inventory carrying costs?

Inventory carrying costs include storage, insurance, handling, financing, and losses from damaged or obsolete stock.

How do you calculate inventory carrying costs?

Divide annual inventory holding expenses by average inventory value, then multiply by 100 to calculate the carrying cost percentage.

Can ERP software reduce inventory costs?

ERP software can improve stock visibility, replenishment planning, and purchasing accuracy, helping businesses reduce unnecessary inventory expenses.

How can businesses reduce inventory without causing stockouts?

Use demand forecasts, reorder points, supplier lead times, and appropriate safety stock levels to balance inventory costs with customer demand.

How Britec Can Help

With over 35 years of experience in business technology, Britec helps companies improve inventory management through better processes and connected ERP solutions.

As an Acumatica Gold Partner, we provide implementation, customization, training, and ongoing support to help businesses manage inventory more efficiently.

Ready to reduce inventory costs without sacrificing customer service?

Talk to a Britec ERP Expert and discover how we can help improve your inventory management.

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