Holding Cost Rate

Holding Cost Rate (保持コスト率)

The holding cost rate (Projects) represents the cost of capital, storage space, insurance, pilferage and obsolescence arising from the investment in spares.

The holding cost rate is expressed as a fraction. For example, 0.2 is interpreted as 20% per year. This cost and the order costs affect only the calculation of the economic order quantity and reorder point, and this occurs after the optimization of stock levels across items and locations is completed.

Typical values run between 18% and 30%, depending on the characteristics of the decision-maker and the problem. The cost of capital should include both interest and amortization of the cost of stock. The simplest way to view this combination is to treat the purchase of stock as a mortgage with no down payment, an interest rate equal to the system owner’s appropriate discount rate, and a term equal to the useful life of the stock (not the system). 

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