Stockout cost
Stockout cost is the consequence of not having inventory when required. It can include lost contribution, disruption, emergency purchases, penalties and damage to customer relationships. Some effects are uncertain or difficult to measure, so a basic EOQ model excluding stockouts does not prove shortage risk is unimportant. Evaluate the service requirement and replenishment uncertainty when choosing buffers and controls.
Worked example
A missing component stops a bottleneck for two hours and delays customer orders, causing lost contribution and possible expedited delivery cost.
Common mistake
Do not value every stockout only at the missing item’s purchase price or assume all lost sales are permanently lost without evidence.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |