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This web site is designed to help navigate
you through the mountain loads of information about inventory
management.
These are costs associated with the inability to provide materials to the production department and / or inability to provide finished goods to the marketing department as the requisite inventories are not available. In other words, the requisite items have run out of stock for want of timely replenishment. These costs have both quantitative and qualitative dimensions. These are, in the case of raw materials, the loss of production due to stoppage of work, the uneconomical prices associated with `cash' purchases and the set-up costs, which can be quantified in monetary terms with a reasonable degree of precision. As a consequence of this, the production department may not be able to reach its target in providing finished goods for sale. Its cost has qualitative dimensions as discussed below: When marketing personnel are unable to honor their commitment to the customers in making finished goods available for sale, the sale may be lost. This can be quantified to a certain extent. However, the erosion of the good customer relations and the consequent damage done to the image and good will of the company fall into the qualitative dimension and elude quantification. Even if the stock-out cost cannot be
fully quantified, a reasonable measure based on the loss of sales for
want of finished goods inventory can be used with the understanding that
the amount so measured cannot capture the qualitative aspects.
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