How to respond to the following? Cycle stock, pipeline inventory, buffer stock, and in-transit inventory all have associated carrying costs. Interest rates on inventory values, warehousing expenses, insurance, handling, and damage costs are all included in carrying costs. Each time a replenishment order is placed for new inventory, ordering fees are incurred. This amount covers the fixed administrative costs as well as the shipping costs associated with each order. Order size normally has little bearing on ordering costs. Demand and lead time volatility affect safety stock. The safety stock increases with increased lead time and demand fluctuation as well as with increased service level. Increased inventory expenses are a result of larger safety stock levels.

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