Dealing first with orders on suppliers, the difficulty is to determine the cost elements
which are truly variable. That each and every order does involve a cost cannot be
denied nor can the fact that an ordering department would hardly be justified if there
were no orders. The problem is that much of the analysis which follows requires that a
cost per order can be recognised which remains constant for a wide range of orders.
It is however the case that the resources involved in ordering are to an extent independent
of the number of orders handled. This applies particularly to the office building
and its associated costs, to a lesser degree to the cost of an order clerk and his related
equipment (desk, calculator, telephone, rent, etc.) or to computer usage. Only such
things as documentation and 'phone calls can be directly related to a specific order. A
reasonable compromise in these circumstances is to total all costs except those related
to accommodation and management and for a particular period divide this total by
the number of orders handled. In practice the cost of an order calculated in this way
can range from as little as £0·50 to over £2. As the latter figure is approached however
there is the suggestion that the ordering process is not of acceptable efficiency.
Downloaded by