In Inventory control, explain what are stock-out costs and give examples of stock-out costs

When dealing with inventory control, quite often we encounter terms like stock out costs and would like to give some examples of them. Tabulated below the definition of stock out costs and some examples:

Stock-out costs are costs associated with running out of stock

Examples of stock-out costs are:

  • Lost contribution through the lost sale caused by the stockout
  • Loss of future sales as customers go elsewhere
  • Loss of customer goodwill
  • Cost of production stoppages caused by stock-out of  work-in-progress or raw materials
  • Labour frustration over stoppages
  • Extra costs associated with urgent, often small quantity, replenishment purchases.

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