Calculate total inventory cost by summing carrying costs, ordering costs, and stockout costs to find your true inventory expense.
Total inventory cost (TIC) is the sum of three major cost components: carrying cost (the expense of holding stock), ordering cost (the expense of placing orders), and stockout cost (the penalty for running out of stock). Optimizing inventory means minimizing TIC, not any single component in isolation.
A common mistake is focusing solely on reducing inventory levels (cutting carrying cost) without considering the resulting increase in stockouts or ordering frequency. TIC provides the holistic view needed for sound inventory decisions, capturing the full economic picture of your stocking strategy.
Enter your annual carrying cost, ordering cost, and estimated stockout cost to see your total inventory cost and the relative share of each component.
Supply-chain managers, warehouse operators, and shipping coordinators rely on precise total inventory cost data to maintain efficiency and control costs across complex distribution networks. Revisit this calculator whenever conditions change to keep your logistics plans aligned with real-world performance.
TIC is the ultimate scorecard for inventory performance. It captures the trade-offs between holding too much (high carrying cost), ordering too frequently (high ordering cost), and stocking too little (high stockout cost). Tracking TIC over time shows whether your inventory initiatives are actually reducing total costs or simply shifting them between categories.
TIC = Carrying Cost + Ordering Cost + Stockout Cost Where: Carrying Cost = Avg Inventory Value × Carrying Rate % Ordering Cost = (Annual Demand / Order Qty) × Cost per Order Stockout Cost = Lost Sales × Margin + Backorder + Churn At EOQ optimum: Carrying Cost ≈ Ordering Cost (TIC minimized)
Result: TIC = $225,000
TIC = $150,000 + $45,000 + $30,000 = $225,000. Carrying cost is 67% of TIC, suggesting potential savings from inventory reduction or turnover improvement.
Carrying cost rises with inventory levels and includes capital, storage, insurance, and obsolescence. Ordering cost rises with order frequency and includes procurement labor, freight, and receiving. Stockout cost rises as service deteriorates and includes lost margin, backorder expense, and customer defection. TIC captures all three.
The classic EOQ model minimizes the sum of carrying and ordering costs. Adding stockout cost modeling extends this to a service-level-aware optimization. The result is an order quantity and reorder point that minimize total cost while maintaining a target fill rate.
Present TIC in a stacked bar chart showing the three components over time. This visual immediately shows whether cost reductions in one area are being offset by increases in another, or whether true total cost improvement is occurring.
TIC is the inventory-specific cost model. Total Cost of Ownership (TCO) expands to include purchase price, quality costs, supplier management, and overhead. Both frameworks are useful for different decisions — TIC for inventory policy, TCO for supplier selection.
Total inventory cost is the sum of all costs associated with managing inventory: carrying (holding) cost, ordering (procurement) cost, and stockout (shortage) cost. Minimizing TIC is the objective of inventory optimization.
Reducing carrying cost by cutting inventory increases stockout risk and may require more frequent ordering. TIC ensures you consider all trade-offs and find the true minimum cost point.
At EOQ equilibrium, carrying and ordering costs should be roughly equal, each around 40-50% of TIC (with stockout cost as a small remainder). If carrying cost is 80%+ of TIC, you may be over-stocked.
Improve demand forecasting (reduces stockouts and excess stock), automate procurement (reduces ordering cost), negotiate better warehouse rates (reduces carrying cost), and implement EOQ-based ordering (optimizes the balance). Always verify with current data, as conditions may change over time.
Purchase cost (unit price × volume) is sometimes included for total cost of ownership analysis. Standard TIC focuses on the variable costs that change with inventory policy — carrying, ordering, and stockout.
Total inventory cost typically ranges from 5-15% of revenue depending on the industry. Companies with high turnover (grocery) trend lower; those with slow-moving or specialized inventory trend higher.
No. Unless you have zero inventory, zero orders, and zero stockouts — which is impossible for a business that sells physical products. The goal is to minimize TIC, not eliminate it.
Calculate TIC monthly or quarterly. Track the trend over time. Include TIC metrics in your S&OP dashboard alongside fill rate, inventory turns, and days of supply for a complete performance picture.