They affect an organization’s profitability and productivity. Instead, they are costs that do not get associated directly with inventory, but are caused by moving, storing, and handling excess inventory in the enterprise. These are not the typical costs like inventory carrying costs. The failure to manage inventory and contain this surplus becomes the source of what we call hidden costs. In order to avoid such possibility, the mantra of “keep it filled” conveniently becomes the platform for a second objective of “buy it cheap.” The reason for this build up, in our experience, is that retail professionals are convinced that if they have inadequate inventory for customers, their businesses are bound to fail. As a Kurt Salmon analysis noted, most retailers carry anywhere between 20 to 40 percent surplus inventory. High levels of inventory can have the same effect in the retail supply chain. Even though you navigate around the visible ice, the hidden ice can still sink your ship.
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