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The carrying costs of inventory are often ridiculously underestimated. Why is there a contradiction between the traditional Cost Accounting estimate of the carrying costs of inventory and the Lean way (Toyota Motor Company & al.)? Factories tend to estimate the cost of their inventory at about 5% per year. Philip Marris explains in this video why this estimate is wrong, why the true cost might be 10 times or 100 times that. The cost of having inventory is not just the storage costs + financial costs + insurance. There are at least 2 other sources of cost that are much more significant: the contribution to the costs of non-quality and the cost of the inertia that inventory creates. When you estimate the cost of your inventory in your system you should try to significantly increase the cost estimate. In this way you will invest more effort in time and money into reducing your inventory (especially your Work In Progress). If the true carrying cost of inventory was not phenomenal then Toyota would have gone bankrupt a long time ago. If you want to see more content like this, have a look at our website: https://www.marris-consulting.com/en/ Check our LinkedIn company page: / marris-consulting Marris Consulting is a management consulting firm. Our motto: Factories, People & Results.