8.9 Key Terms
Key Terms
- Backorder costs are incurred when a customer is willing to wait for their order to be fulfilled after the item is restocked.
- Finished goods or merchandise: These are the final products ready for sale and distribution to customers, commonly found in retail stores and warehouses.
- Inventory holding costs aim to capture all the actual and opportunity costs incurred by an organization due to maintaining inventory.
- Ordering costs refer to the expenses incurred by an organization when placing an order for inventory replenishment.
- Raw materials or purchased parts: These are the basic components or materials required for production or assembly processes.
- Spare parts, tools, and supplies: These are additional inventory items required for maintenance, repair, and operational purposes within the organization.
- Stock-out costs refer to the economic consequences an organization faces when it runs out of stock for a particular item.
- Total purchasing or acquisition costs refer to the total expenditure incurred by an organization in procuring an item over a specific period, such as a year, quarter, or month.
- Total Cost of Optimal Order size (TC(Q) is the sum of ordering cost (S) and holding cost (H). At its minimal level, ordering cost and holding cost are equal.
- Work in process (WIP) or work in progress: These are semi-finished or partially completed items found in the middle of assembly lines and manufacturing facilities.
