What does the term "carrying costs" refer to in the context of inventory management?

Carrying costs in inventory management specifically refer to the costs associated with storing and handling inventory over a period of time. These costs can include various elements such as warehousing expenses, insurance, depreciation, and the opportunity cost of capital tied up in inventory. Essentially, carrying costs represent the ongoing expenses that a business incurs while holding inventory, rather than the costs related to production, transportation, or purchasing. This concept is crucial for businesses as it helps them determine how much inventory to hold and understand the financial impact associated with it.