Question

The main shortage cost when a producer does not have a requested item in inventory is

a. proportional increase in stock out cost.
b. high inventory replentishment cost.
c. escalated international transport cost.
d. the cost from the loss of customer goodwill.

Answer 1

D. The cost from the loss of customer goodwill.

Step-by-step explanation:

The main shortage costs are the loss of customers that would now go and shop elsewhere. These costs are crucial as once the goodwill is lost it is unlikely the customers would return due to not having being catered the first time. Business want to attract new customers but most importantly they want to retain customers.

This type of shortage cost can be objectified further in marketing costs that were spent to get the customer at the store front in the first place which have been in vain.

All other options are restocking costs that are to be incurred regardless in lead times.

Hope that helps.