13.9 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.
“8.9 Key Terms” from Fundamentals of Operations Management by Azim Abbas and Seyed Goosheh is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
