Key Inventory Terms

• Lead time: time interval between ordering and receiving the order Annual $ value of items B C High Low F e w Many Number of Items Few

• Holding (carrying) costs: cost to carry an item in inventory for a length of time, usually a year 

• Ordering (setup) costs: cost to prepare a machine or process for manufacturing an order 

• Shortage costs: costs when demand exceeds supply (the opportunity cost of not making a sale, loss of customer goodwill, late charges, the cost of loss of production or downtime and so on)