Annual Demand Calculation (D)

The Annual demand is the number of units that you sell annually. If actual units are not available, then you can use expected sales figure based on your sales trend.

The following table will give you a better idea about what the other factors are that can have an impact on demand and your business operations:

Market conditions
  • Change in customer taste
  • Competition
  • Shift in industry standards
Economic conditions
  • Change in tax rate
  • Trade regulations, domestic and international
  • Monetary policy

Order Cost Calculation (S)

This refers to the costs that are involved with an order but cannot be directly associated with the purchase cost.

  • Examples include,
  • ► Transport charges and custom duties incurred during the movement of the items
  • ► Clerical charges paid to an outsourced agency for recording transaction
  • ► Salary paid to the quality check team before the items enter your warehouse
  • ► Amount spent in setting up a machine or equipments

Holding cost calculation (H)

This refers to all the costs that are involved in storing or handling the items in your store or warehouse. Usually, holding costs are fixed in nature.

  • Examples include,
  • ► Monthly rent for the shop or warehouse that you use to store items
  • ► Employees salary and warehouse labor wages
  • ► Electricity and insurance cost