Ordering cost
In one sentenceCosts that repeat with every purchase order regardless of its quantity, such as preparing and following up the order, shipping, receiving and inspection.
Simply put
Every purchase order takes an employee's time, calls, shipping and receiving. If you order often in small quantities, this cost repeats.
Add up the cost of one order and multiply it by the number of orders in the year.
Worked example
A restaurant orders vegetables from its supplier 24 times a year, and the cost of one order (employee time and delivery) is 250 SAR.
Number of orders in the year24 orders
Cost of one order250 SAR
Annual ordering cost24 × 250 = 6,000 SAR
Formula: Number of purchase orders × cost of one order
Don't confuse it with
Holding costReducing the number of orders lowers the ordering cost but raises the holding cost.