Certified Supply Chain Professional (CSCP) Practice Exam

What type of costs are related to backorders, lost sales, and lost customers?

1. Operational costs

2. Financial costs

3. Customer service costs

4. Marketing costs

The correct answer is: Customer service costs

The type of costs related to backorders, lost sales, and lost customers is categorized as customer service costs. These costs arise when a company's inability to meet customer demands leads to negative customer experiences. For instance, backorders indicate that a customer has ordered a product that is not currently available, which can result in dissatisfaction and potential loss of future purchases. When a product is backordered, not only does it delay the fulfillment of the current order, but it may also lead to a customer deciding to turn to competitors for their needs, resulting in lost sales. If these situations occur frequently, they can damage a company's reputation, ultimately leading to lost customers who may choose to permanently switch to another supplier. Customer service costs encapsulate all the efforts and losses a company incurs due to not being able to respond effectively to customer needs. This includes the direct lost revenue from unfulfilled orders and the indirect costs associated with rebuilding customer trust and loyalty after a negative experience. Operational costs tend to focus on the direct costs of producing goods and services, while financial costs are more about the financial implications on cash flow and profitability. Marketing costs would be related to promoting products and acquiring new customers, rather than managing the relationships with existing customers and addressing their service expectations.