| To compute lot-size-related costs |  |
| As part of the optimization procedure for logistic parameters, ERP 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 price)
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 price)
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
You can define the following data in the Resource Cost Values (cprao3120m000) session: Start Date Finish Date Overtime Tariff Percentage (OR) Change Over Tariff (SR) Risk Percentage by Day (Ri) Inventory Cost Percentage (IP) The result of the computation is displayed in the Plan Items - Optimized Lot Sizes (cprao3110m000) session. Related topics Optimization algorithm for logistic parameters To compute the cost of obsolete items |