India's wholesale inflation rose to 11.39% in September, up from 9.92% in August (News On AIR). Manufactured products rose 9.76%, with basic metals, chemicals and rubber and plastics among the drivers, and fuel and power climbed 25.85%. Brent crude closed at $109.69 a barrel on 16 October (Trading Economics). For manufacturers, this raises inventory carrying cost twice at once. Most planning processes only see one of the two.
Why inventory carrying cost rises twice
The first hit is obvious. Every unit you replenish now costs more, so the same days of stock tie up more rupees.
The second hit is quieter. Carrying cost is a percentage of inventory value: the cost of capital, storage and handling, insurance, and the risk of obsolescence or damage. When the value of the stock rises, the cost of holding it rises with it, even if the number of units hasn't changed.
A simple illustration (use your own numbers):
- You hold ₹100 Cr of inventory and your carrying rate is 20% a year. Holding it costs ₹20 Cr a year.
- You replace the same units at prices 10% higher. You now have ₹110 Cr tied up, and holding it costs ₹22 Cr a year.
- That is ₹10 Cr more capital and ₹2 Cr more cost every year, for exactly the same service to customers.
Nothing in a monthly inventory review flags this. Days of stock look the same. The balance sheet doesn't.
Work out your own number: inventory carrying cost calculator
Where the excess hides
Excess inventory is never spread evenly. It sits in a few predictable places:
- Buy-ahead stock bought to beat a price rise, then never re-checked when demand moved.
- Safety stock set for old conditions: lead times, variability and service targets that have since changed.
- Slow movers that kept being replenished because no one asked whether they should be.
- Pipeline stock at distributors and depots that looks like sales but isn't consumption.
Inflation tempts teams to buy early. Sometimes that's right. But commodities don't move together: aluminium fell 8.8% in a month to about $3,008 a tonne (Trading Economics) in the same weeks that palm oil rose 3.9% in a week (Trading Economics). A blanket "buy ahead" or "cut stock" rule gets half the portfolio wrong.
The scale can be large. At one plant of an auto components manufacturer, we found ₹9.66 Cr of unneeded inventory out of ₹31 Cr. Most manufacturers run several plants.
Five levers that release working capital without hurting service
- Re-set safety stock by SKU and location. Base it on demand variability, lead-time variability and the service level each product actually needs, not a flat "30 days" rule.
- Separate buy-ahead decisions from replenishment. Decide forward buying per commodity, with an explicit view of the price risk and the cost of holding the extra stock.
- Re-plan on demand events, not the monthly cycle. Spikes, drops, promotions, channel shifts and large orders won or lost should change stock, production and dispatch plans within days.
- Rebalance before you buy. Excess in one warehouse and shortage in another is common. Moving stock is usually cheaper than buying more of it.
- Watch for disruptions continuously. A late purchase order or a production delay should trigger a decision the same day, not show up as a stock-out three weeks later.
What good looks like for each role
- CFOs see which stock protects service and which simply locks up capital, by product and location.
- Heads of supply chain get one view across demand, inventory, production and dispatch, so S&OP trade-offs are made with the same numbers.
- Planners stop hunting for problems and get exceptions with a recommended action attached.
- COOs and plant heads see when a shortage will hit the production plan before it does.
How TranslytiX helps lower inventory carrying cost
TranslytiX is an AI-powered decision intelligence platform that sits on top of SAP, Oracle or whichever ERP you run. It works in two layers.
Demand planning is proactive. A 22-algorithm AI forecasting ensemble sets the plan ahead. Clients see 10%+ better forecast accuracy, which translates into 5–10% less inventory.
Inventory planning is reactive. A digital twin of your inventory watches for disruptions: a demand spike or drop, a production delay, a delay in a purchase order. When one happens, it alerts planners with the root cause and recommended actions, built on operations research rather than rules of thumb, and it warns them before a demand spike becomes a stock-out.
Above that sits network design: is the network itself set up right? Which plant makes what, which warehouse serves which market, and where should stock sit? And Ask TX, the AI assistant in TranslytiX, lets anyone ask in plain language and get the answer with the reason behind it.
Clients use TranslytiX to release 5–20% of working capital while protecting service levels. See how on our inventory optimization software page.
Start with the stock that matters
Inflation won't wait for the next planning cycle. The fastest win is usually a short list: the SKUs and locations where value has risen most and where stock no longer matches demand.
Want to see it on your own data? Request a demo or see use cases.