How is Service Cost defined in the context of logistics?

Service Cost in the context of logistics is defined as the expenses associated with maintaining the service levels that meet customer demands. This includes aspects such as the cost of inventory management, which involves managing stock levels to ensure availability without incurring excessive holding costs, as well as insurance costs that protect against losses due to unforeseen events.

This definition captures the essence of logistics services, which aim to balance efficiency and customer satisfaction. Effective inventory management ensures that products are available when needed, while insurance is crucial for mitigating risks associated with potential losses during storage or transportation. By encompassing both elements, this choice accurately reflects the comprehensive nature of service costs within logistics operations.