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Test the return on extra inventory after carrying cost. This first calculation assumes no fill-in purchases; the workbench can measure that exposure from dated availability history.
Return on each extra month
| Extra month | Return on added investment |
|---|---|
| 1 | 49.8% |
| 2 | 29.8% |
- Break-even total months of stock
- 11.7
- Annual gross savings on 2 extra months
- $2,000.00
- Annual net savings after carrying cost
- $1,590.00
Each extra month's stock earns the price advance only on that month's purchases, and the money is tied up longer with each added month, so the return falls as you buy further ahead. As an illustrative calculation, months whose return clears your hurdle may be candidates for review; confirm the supplier's actual terms, normal order scope and your assumptions before deciding. Past the break-even point the carrying cost eats the whole saving.
This return assumes no item runs out before the extra stock is used up. When a staple does, you fill in at the normal price and part of the saving disappears. The workbench computes that probability from your usage history and reports the return on the final added investment.