Short and sweet: Order costs

Order costs include all costs incurred when processing an order. This includes the costs of preparing the order, completing the order and the costs of processing the order. In addition to inventory costs , ordering costs are the second important cost component in determining economic order lot sizes.

Our tip:

Ordering costs| Young woman checks balance sheetsWhen determining order costs for the calculation of economic order lot sizes, the concept of order costs must be interpreted more comprehensively. In this case, order costs are to be understood as all costs incurred from the preparation of the order to the availability of an order lot in the warehouse. These comprehensive ordering costs can also include transportation, incoming goods and quality inspection costs.

It is not the fixed components of the order costs that are important here, but only the variable cost components, i.e. those costs that are only incurred when an order process is initiated.

Statements relating to the full costs of an order (fixed + variable costs) should be treated with great caution. Statements such as “Each order costs €50” simply mean that the annual costs of the purchasing cost center divided by the number of orders in a year result in a value of €50 per order. They do not represent a statement on the marginal costs of a single additional order, but are often understood as such in practice!

Picture of Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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