Material cost

Thread Starter

Pls tell me why we are adding expected stock out( which is loss due to stock out) with inventory carrying cost to get total cost. Then why we take least amount of total cost to say safety stock level

Sriram Somayajula Admin

please share a specific illustration or video or screenshot where it is so done. we can answer better if we know what you are referring to

Sriram Somayajula Admin

There may be costs associated with a stockout. For Eg you may have to pay idle time wages. or say when it is a process plant if there is no stock you have to do some special activity to keep the machinery in working condition. Power plants cannot be shut down or restarted at will. if they do not have cola and are shut down, restarting may take a longer time. so during stick out, they may have to do some process. There could be many such reasons in chemical process-based plants. hence even in the case of stock-outs costs could exist. In the given example we are trying to find out the least total cost ( a mix of safety stock cost + stock out cost)