Ordering Cost

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  Order Cost is defined as; a direct labor cost that is incurred when an order is placed.  Ordering costs are different from the “Order Costs”. 

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  The ordering costs are all the costs associated with the purchase order and any labor involved in inspecting the goods when received, any labor associated with stocking the received items, invoicing suppliers and issuing payments.  Ordering costs can typically vary tremendously between orders.  
Examples of Ordering Costs

• Some examples of ordering costs might include the administrative tasks that are associated with generating a purchase order.  Such as computer work, communication, analysis as well as tracking orders and ensuring that vendors receive there payments.
• Another example of ordering costs that are often overlooked are the costs associated with receiving orders in, inspecting or checking the orders and ensuring that the order is handled in an appropriate way.
• Lastly, ordering costs can also occur internally within a manufacturing plant.  For example there may be time taken to set up your order or tear down your order.  These costs can in some organizations be attributed to ordering costs as well.  It is important to note that when setup and teardown times are excessive, a company loses capacity and that also means they are not producing value.

Building a Template for Ordering Costs

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Summary
  You now know what ordering costs are.  In short, ordering costs are the costs that increase as the number of orders placed increases.  In other words ordering costs are directly related to the number of orders placed and not the volume of order.  This includes costs that may be related to different types of clerical work, like, preparing, releasing, monitoring and receiving orders; It can also include the physical handling of goods; inspections and setup costs.

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Challenge:

• Now let's stretch our minds with this new knowledge.  You can share your answer in the comments section, community or upcoming assignments section.  What are some examples of ordering costs that you are aware of at your place of work?

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