High stock-out costs relative to holding costs should lead to recommendations for larger orders.

Question

Quizplus · Accepted Answer

When the stock-out costs (e.g. lost sales, dissatisfied customers, rush orders, etc.) are high relative to the holding or carrying costs (e.g. storage, handling, insurance, obsolescence, etc.), it is more cost-effective to order in larger quantities to maintain sufficient inventory levels and reduce the risk of stock-outs. This is known as the economic order quantity (EOQ) model in inventory management.

High Stock-Out Costs Relative to Holding Costs Should Lead to Recommendations