Out-of-stock cost of warehousing cost 2021-06-20 11:03:50 Out-of-stock cost refers to the loss caused by the interruption of inventory supply, including the shutdown loss caused by the interruption of the supply of raw materials, and the delayed delivery caused by the out-of-stock of the produced crystal inventory. Loss and loss of sales opportunities (should also include loss of goodwill); if the production company urgently purchases substitute materials to solve the emergency of the interruption of inventory materials, then the cost of out-of-stock manifests as an emergency additional purchaser cost (the cost of emergency procurement is greater than the normal Purchase cost part). Out-of-stock costs mainly include the following: 1. The cost of insurance inventory Many companies consider maintaining a certain amount of inventory to deal with market demand or lead time uncertainty. For this part of the insurance inventory, you need to pay the corresponding storage costs for it. To control the cost of insurance inventory, it is necessary to determine a reasonable amount of inventory. Therefore, too much inventory means excess inventory, and insufficient inventory means shortage or loss of sales. 2. The cost of backorder If the out-of-stock goods are delivered on a later date, special order processing and transportation costs will occur. The processing fee for special orders for backorders is higher than for the alternative processing fees supplemented by the rules. The high cost is mainly because backorders are often small-scale shipments, and the transportation rates are relatively high; some of the backorders need long-distance transportation; fast and expensive transportation methods need to be selected. 3. Loss of sales costs Many logistics companies have competitors who produce alternative products. When a supplier does not have the products that the customer needs, the customer will order from other suppliers. In this case, the shortage of goods leads to loss of sales. The direct loss to the seller is the profit of this product. In addition to the loss of profit, it also includes the wasted energy (loss of opportunity) of the salesperson who was in charge of the salesperson, and a shortage of goods may have a long-term impact on future sales. 4. The cost of losing customers Because of the shortage of goods, customers always turn to another supplier. The company loses a series of future revenues and adversely affects the reputation of the company. 5. Calculation of expected loss In order to determine how much inventory needs to be maintained, it is necessary for Guangzhou logistics company to determine the expected loss caused by stock out. First, analyze the possible consequences of stock outs, including: delayed delivery, loss of sales and loss of customers. Second, calculate the loss of profit associated with the possible outcome. Finally, calculate the loss of a stock out. If the cost of increasing inventory is less than the loss of one out of stock, then inventory should be increased to avoid out of stock. If an internal shortage occurs, it may cause production losses (personnel and machinery idle) and delays in completion. If the entire production line is shut down due to a shortage of an item, the cost of the out-of-stock is very high. This is especially true for companies that implement just-in-time production management (JIT). In order to make the best decision on insurance inventory, companies from Guangzhou to Beijing should have a comprehensive understanding of the cost of stopping production due to lack of raw materials or spare parts.