Inventory finance
Ordering Cost
By the Supply Chain Manager team · Updated October 16, 2026
Ordering cost is the cost of placing and receiving one purchase order, such as buyer time, approvals, receiving, invoice handling and fixed freight charges.
It is a cost per order, not per unit, so it falls per unit as order size grows. That is the force pulling towards larger, less frequent orders, balanced by carrying cost pulling the other way in the EOQ model.
Ordering cost is easy to underestimate because it is spread across several people: the buyer who raises the order, the manager who approves it, the receiving team, and accounts payable who match and pay the invoice. Adding up the minutes at each step usually gives a larger figure than expected.
How to calculate ordering cost
Annual Ordering Cost = Number of orders per year × Cost per order
Ordering cost example
Illustrative numbers: if raising, receiving and paying for a PO takes about 90 minutes of staff time at $30 an hour, plus a $15 fixed delivery charge, each order costs about $60. Ordering one SKU weekly instead of monthly adds roughly 40 orders, or $2,400 a year.
Why ordering cost matters for distributors
Automating PO creation lowers the cost per order, which makes smaller, more frequent orders economic and reduces stock without more work.
Common ordering cost mistakes
- Leaving ordering cost out of order-size decisions entirely.
- Assuming it is the same for every supplier, when freight terms vary widely.
Examples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.