Inventory economics: what the warehouse costs and ties up

A warehouse is not just shelves and goods — it is also money. Each item in the warehouse represents an investment and the warehouse costs space work energy and risk. Understanding warehouse economics helps you see why the company emphasises accuracy rotation and avoiding waste.

• 01Capital tie-up: the money is tied up in goods instead of being able to be used elsewhere.
• 02Space: shelves, area and handling cost.
• 03Risk: goods can become obsolete, damaged or disappear.
• 04Work and energy: handling, counting, cooling and lighting.

The turnover speed describes how quickly the warehouse's goods are sold and renewed. A high turnover speed means the goods don't sit long and tie up money. A low turnover speed can mean oversized inventory, old goods or goods that are difficult to sell. That's why there's a focus on getting goods to move, not collect dust.

Shrinkage is goods that disappear without being sold — because of damage, misrecording, expiration or theft. Shrinkage costs not just the goods' value; it also gives incorrect stock numbers that lead to mispicks and incorrect purchases. An item that is recorded but not found can cost you the sale and the customer's trust on top of that.

• 01Record each movement correctly so inventory figures are reliable.
• 02Handle goods so they are not damaged.
• 03Rotate according to FIFO so that durable goods don't get too old.
• 04Report visibly outdated or damaged goods further.

When you understand that each item is tied-up capital and a risk the company's focus on accuracy and rotation makes sense – and you can contribute to better warehouse economics directly from the floor.