Inventory Holding

How Do You Calculate Inventory Holding?

You can calculate your inventory holding using this formula:

Inventory Holding = Average Inventory × Unit Cost Price

A simple example:
If your average inventory value is DKK 200,000, you have DKK 200,000 tied up in stock. That’s capital you can’t use elsewhere in your business – for example, on marketing, product development, or operations.

With modern inventory management and precise purchasing management, you can ensure that your purchasing matches actual demand – and keep your inventory holding at an optimal level.

Why Inventory Holding Matters

1. Liquidity:
When large amounts of capital are tied up in inventory, you have fewer free funds to cover daily expenses or invest in growth initiatives like marketing, product development, or hiring. High inventory holding can make it harder to react quickly to market changes or seize new business opportunities. An effective WMS (Warehouse Management System) can help you optimize your stock and free up working capital.

2. Risk:
The longer an item sits in your warehouse, the greater the chance it loses its value. It may become outdated, damaged during storage, or simply irrelevant to current market needs. This risk is especially high in industries with fast turnover or seasonal products. With a dedicated inventory system and warehouse scanners, you can track and rotate items correctly – avoiding overstock before it becomes a loss.

3. Costs:
Storing products isn’t free. You pay for warehouse space, electricity, heating, insurance, and admin – and the bigger your warehouse, the higher these fixed and variable costs. In addition, larger warehouses require more manual handling, which costs both time and labor. With automated order management and digital workflows, you reduce manual effort and associated costs.

How Rackbeat helps you reduce inventory holding

At Rackbeat, we know it’s about having the right items on the shelf, in the right quantities – at the right time.

With our cloud-based inventory management system, you get:

• Real-time insight into your stock levels

• Reorder reminders based on minimum stock levels

• Turnover rate tracking for your products

• Tools to avoid overstock and dead inventory

• Integration with warehouse scanners for fast and error-free item registration

All of this helps you minimize unnecessary inventory holding – and free up capital you can reinvest in growing your business.

Inventory holding in practice

Let’s say you run an electronics webshop and decide to buy in bulk to get a good supplier discount. You end up with stock worth DKK 500,000 – but demand drops. Now you have high inventory holding, making it difficult to invest in marketing. Some items may even become obsolete.

If, instead, you use a system like Rackbeat, you gain insights from your sales data and can plan smarter – using order management, procurement tools, and live inventory tracking – so you purchase based on real demand, not guesswork.

Inventory holding – in short

• Inventory holding is the capital tied up in your inventory

• High inventory levels can strain liquidity and increase risk

• It’s about finding the right balance – enough stock to meet demand, but not so much that it slows your operations

• With Rackbeat’s user-friendly inventory system, effective inventory management, and tools like warehouse scanners, you get the full overview needed to keep your inventory holding healthy and efficient

Free advice on managing your inventory

Not sure how to reduce your inventory holding – or which type of inventory system suits your business?

At Rackbeat, we offer a short and free online advisory session where you’ll get tailored input on how to optimize your inventory management, order workflows, and procurement strategy.

We’ll focus on your specific business needs and show you how the right setup – such as a cloud-based WMS and warehouse scanner integration – can help you manage your inventory without tying up unnecessary capital.

Book a free, no-obligation session here:

Related terms

• Inventory Management

• Inventory Turnover

• Minimum Stock Level

• Dead Stock

• Capital Tied Up