From the course: Operations Management Foundations
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Holding cost or ordering costs?
From the course: Operations Management Foundations
Holding cost or ordering costs?
- So let's say you need to buy some inventory and you really want to control your annual inventory costs. You call up a supplier and they're willing to sell you what you need in boxes of 100 units. One box costs $100. If you buy five to 10 boxes though, each box will only cost you $90. Anything over 10 boxes and the price of a box of 100 units goes to $80. So how many boxes are you buying? Hopefully, you didn't just yell out a number. Instead, I'm hoping you had a few questions like, what am I selling, what's my demand, how many units do I sell per day, how much does it cost for shipping one box, how much does it cost to ship 10 or more boxes, how much room do I have to store those items? You see, the true cost of inventory takes into account all of those issues and so many more. But rather than trying to come up with all of the possible costs associated with each purchasing decision, let's simplify it and reduce…
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