In supply chain management, what are total ordering and holding costs?
Understand the Problem
The question is asking about the relationship and total costs associated with ordering and holding inventory in supply chain management. This involves understanding how these costs impact overall supply chain efficiency and decision-making.
Answer
Ordering costs are incurred when placing orders, and holding costs are related to storing unsold inventory.
In supply chain management, ordering costs are the expenses incurred each time an order is placed, whereas holding costs are associated with keeping unsold inventory. Both contribute to the total inventory cost.
Answer for screen readers
In supply chain management, ordering costs are the expenses incurred each time an order is placed, whereas holding costs are associated with keeping unsold inventory. Both contribute to the total inventory cost.
More Information
Ordering and holding costs are critical in managing the economic order quantity (EOQ) to minimize total inventory costs.
Tips
Be sure not to confuse ordering and holding costs as they apply to different stages of the inventory management process.
Sources
- What Are Holding Costs? Definition, How They Work, and Example - investopedia.com
- What are Ordering Costs? Understanding the Fundamentals - shiphero.com
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