Definition of Ordering Cost

Ordering cost is the essential costs incurred every time an order is placed to the supplier. The ordering cost incurred every time an organization placed the order despite the size of it.

Example of Ordering cost include;

• The cost incurred in preparing an order demand
• The cost incurred in placing an order demand
• The cost incurred in inspecting goods when an order is received
• The cost incurred in the unloading of goods when received
• The cost incurred in storing the inventory
• The cost incurred to prepare and issue a payment to the supplier

Ordering cost can be reduced if a large order is placed to the supplier to receive goods for a longer period. However, ordering costs may increases if the company order inventory only when needed. But this cost is traded off with the holding cost of the goods.