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Download from "The Logistics and Supply Chain Toolkit" by Gwynne Richards and Susan Grinsted

The main point of the template is to help you identify ALL the cost elements that contribute to
ordering cost in your company. Some of the costs below may not be relevant to you. Alternatively,
you may have some extra ones! If you find some in your business that are not listed here, do tell us
about them and we’ll update the spreadsheet to help future users. There are some duplicate entries to
help you think of other costs but be careful to enter the cost data only once.

TEMPLATE FOR CALCULATING ORDERING COST


Total replenishment cost is made up of:
Cost of procurement (purchasing function)
Cost of transport
Cost of goods receiving and inspection
Cost of returns or non-conformance

Of the above components, cost of procurement is the most complex. The following template
will help you gather together all the elements of this cost.

Estimated annual
Category Cost element cost
Office space Rental or depreciation
Taxes
Maintenance
Insurance
Fire detection and extinction system
Utilities - electricity, water
Office equipment - desks, chairs, etc

IT & office systems Computers


Printers
Routers
Other network hardware
Software
System support
Telephone / Internet
Staff mobile phones
Voice picking equipment
Direct employement costs Salaries
Social charges and pension costs
Overtime
Agency costs

Expenses Staff cars


Transport, subsistence, accommodation
Training
Office consumables
Postal charges

Cost of services consumed Access control


Security
Fire alarm system & testing
Cleaning
Waste disposal

Proportion of cost of shared Personnel


functions Site maintenance
Accounting
Legal
Project engineering
inventory management
Production management
Transport
Logistics
Other
TOTAL

What to do next

1. Total procurement cost


Adding up all these different elements will yield total annual procurement cost. This can be graphed
year by against total procurement spend to check that the procurement function is working effectively.
In general, total procurement cost should be reducing as a proportion of total procurement spend.

2. Average cost of procurement per order.


Dividing total procurement cost by the total number of purchase orders raised during the year will
yield average procurement cost per order. In general, year on year, this should be decreasing, as a
consequence of implementing more efficient ordering methods.

3. Total ordering cost


Add to this total procurement cost, the costs of transport, goods receiving and inspection, returns
and non-conformance to find a total ordering cost.
Divide this total cost by the number of orders placed to find an ordering cost that can be used
in the economic order quantity equation.