Computing lot-size-related costs

As part of the optimization procedure for logistic parameters, LN calculates the total cost during the optimized period.

Note

The computation only considers the time period that you specified in the Resource Cost Values (cprao3120m000) session.

Calculation

 TC = ICC + COI + SCN + SCO

Where:

TC	total cost during optimized period
ICC	inventory carrying cost
COI	cost of obsolete items
SCN	setup cost (normal rate)
SCO	setup cost (overtime rate)

Inventory carrying cost

 ICC = AIL * (IP/100)* C * L

Where:

ICC	inventory carrying cost
AIL	average inventory level
IP	inventory cost percentage
C	material cost of the item (standard cost)
L	length of time period (in days)

Example: inventory carrying cost

Data:

AIL	1200 kg (average inventory level)
IP	0.1 %/day (inventory cost percentage)
C	45 $/kg (material value)
L	30 days (length of time period)

ICC = AIL * (IP/100) * C * L

Result of the calculation: ICC = 1620 $ (inventory carrying cost for the period of 30 days)

Cost of obsolete items

 COI = AIL * C * (Ri/100) * L/F

Where:

COI	cost of obsolete items
AIL	average inventory level
C	material cost of the item (standard cost)
Ri	risk of turning obsolete (percentage by day)
L	length of time period (in days)
F	number of times that the item is produced in the time period

Example: Cost of obsolete items

Data:

AIL	1200 kg (average inventory level)
C	45 $/kg (material value)
Ri	1 %/day (risk of turning obsolete)
L	30 days (length of time period)
F	20 (number of times that the item is produced in the time period)

 COI = AIL * C * (Ri/100) * L/F

Result of the calculation COI = 810 $ (cost of obsolete items)

 AIL = D / (2 * F)

Where:

D	total demand during the time period (in inventory unit)
F	number of times that the item is produced

Example: average inventory level

Data:

L	30 days (length of time period)
D	48,000 kg (total demand during the time period)

If the inventory is replenished once every 30 days, to a level of 48,000 kg, the average level is 24,000 kg.

However, if the inventory is replenished 20 times in every 30 days, to a level of 2400 kg, the average level is 1200 kg.

 AIL = D / (2 * F)

Result of the first calculation:

F	1 (number of times that the item is produced)
AIL	24,000 kg (average inventory level)

Result of the second calculation: F = 20 AIL = 1200 kg

 F = D / LS

Where:

F	number of times that the item is produced
D	total demand during the time period (in inventory unit)
LS	lot size

Setup cost (normal rate)

 SCN = F * S' * R * (1 + SR/100)

Where:

SCN	setup cost (normal rate)
F	number of times that the item is produced
S'	setup time during normal working hours [hours]
R	operation rate (cost per hour)
SR	the setup rate percentage of the resource

Setup cost (overtime rate)

 SCO = F * S" * R * (1 + SR/100) * (1 + OR/100)

Where:

SCO	setup cost (overtime rate)
S"	setup time during overtime hours [hours]
OR	overtime rate percentage

The result of the computation is displayed in the Plan Items - Optimized Lot Sizes (cprao3110m000) session.