When orders are placed by a company for stock replenishment, certain costs are involved, and for most practical purposes, it can be assumed that the cost per order is constant. Ordering costs will often vary, depending upon the type of items; raw material such as iron against production components such as casting. You can, however, calculate an estimate of the costs for a particular group of items.
Included in these costs are the following:
– Paperwork costs, typing and dispatching each order
– Subsequent costs needed to insure timely supplies (including travel
costs for purchase follow-ups, telephone, telex and postage)
– Receiving costs (including checking, inspection, handling in-store)
– Setup costs of equipment (if charged by the supplier, either directly
indicated in quotes or assessed through quotes for varying amounts)
– Salary/Wage costs within the purchasing department
Ordering costs usually fall within a set range, but the cost can vary significantly depending upon the efficiency of the purchasing department. If dealing with staggered deliveries, the amounts must often be adjusted to acquire an “economic receipt quantity” instead of an “economic order quantity.”
Whichever plan you put in place to handle and understand your ordering processes, you will need a comprehensive software package to help you analyze sales and calculate the proper order quantities that do not inhibit profits or delay sales being made. SIMMS Inventory Management software is a feature-rich amalgam of tools and reports that will help you manage your business with complete confidence.