Certified Supply Chain Professional (CSCP) Practice Exam

Which type of costs increase with the frequency of placing orders?

1. Storage costs

2. Carrying costs

3. Ordering costs

4. Risk costs

The correct answer is: Ordering costs

The increase in costs associated with the frequency of placing orders is categorized as ordering costs. Ordering costs are directly related to the process of acquiring inventory and include expenses such as shipping, handling, and administrative costs incurred each time an order is placed. As the frequency of placing orders increases, a company incurs these costs more often, thus leading to a rise in total ordering expenses. This relationship is a key component of inventory management and supply chain efficiency, where balancing ordering frequencies can help minimize overall costs. In contrast, storage costs and carrying costs are more associated with holding inventory over time. They do not necessarily increase with how often orders are placed but rather with the amount of inventory that is held. Risk costs pertain to the uncertainties associated with inventory, such as obsolescence or depreciation, and are not directly tied to the frequency of orders. Understanding the dynamics of ordering costs can help organizations optimize their inventory policies and reduce unnecessary expenditure.