Computing lot-size-related costs
As part of the optimization procedure for logistic parameters, LN calculates the total cost during the optimized period.
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.