What is the Ordering Cost?
The total cost incurred by an e-commerce company to purchase and receive products to store in inventory is called the ordering cost. This cost comprises the price of placing an order, inspection cost, paperwork, and labor charges. Most of these expenses are fixed in nature. Businesses frequently track ordering costs to prevent excessive spending.
Significance of Ordering Cost in E-commerce Logistics
In e-commerce, ordering cost assists the business in estimating the value of goods, labor, and others that will be spent on the order. It’s tough to determine whether you’re overspending if sellers don’t keep a close eye on the ordering cost.
Here are some more advantages of ordering costs to consider:
- Budget-control: Ordering costs highlight the cost of each expenditure, so the seller can decide where to control the budget.
- Used to calculate Economic Order Quantity: When determining the economic order quantity, ordering costs are taken into account (EOQ). This parameter advises a business on how much inventory to order and stock.
Pre-requisites of Ordering Cost and How It Works
The following are some prerequisites for ordering costs:
- The cost of making a purchase requisition.
- Order fulfillment costs: Order fulfillment is a multi-step procedure that necessitates several expenditures and overheads to be executed successfully:
- Picking cost
- Packing cost
- Labor cost
Use Case With Ordering Cost
Consider the purchase of a mobile phone using an e-commerce site. Before settling on the final product price, the seller must consider the ordering costs, such as inspection, labor expenditures, transaction fees, marketing costs, and so on. The selling price will now be the total of the product cost, the ordering cost, and any additional expenditures, including tax.
