ordering costs

Economic order quantity is the order quantity that minimizes total inventory holding costs and ordering costs.

The two basic costs of inventory items are (i) ordering costs ie wages, administration and transport costs etc, and (ii) carrying, or holding costs ie interest on money invested in stock, storage costs, insurance costs etc.

Mobil, for instance, recently implemented an Internet ordering system for its roughly 300 lubricant distributors, saving the company $100,000 a year in ordering costs, and cutting the error rate for such orders from 30 percent to virtually none, Ms. Terhune said.