I am analysing the route that spare parts follow in a manufacturing plant, and I should determine the costs deriving both with availability (i.e. stock costs in warehouse) and unavailability (i.e. the costs caused by the lack of the products themselves)
The total cost should comprehend both the two costs (stored and missing materials), but the second term is particularly difficult to identify.
Could you please suggest me an approximate way to calculate it? Is there a correlation, for example in terms of percentages of the unitary cost?
Than you in advance
It depends of what you want to do with the number. If it's to highlight the costs to the business of unavailability then I'd probably view it simply as 'lost' opportunity cost - so if you could have run your SC operations normally, what throughput and output would you have achieved? What is that worth - in terms of sales?
You could do a much more complex calculation looking at the costs of re-scheduling, overtime etc to recover, but you will make just as many assumptions and it will be more complicated. Personally I like the concept of keeping it simple.
You can make reference to what in literature is called newboy model that is mostly the basis for discrete stochastic inventory models
see link : http://www.nextlevelpurchasing.com/articles/stockout-cost.php
and this PDF file maybe helpful.
It depends on the modelling which you are thinking of and get the information about the product. You will have to get the survey for the product which you have in mind.
Cost of unavailability is the stockout cot or shortage cost. Certain cases it is the cost of goodwill loss. Usually, shortages are mitigated and the cost incurred for avoiding the shortage can be considered as shortage cost. So based on the case, we have to estimate the cost..
Dear Debora
I endorse Mark Phillps' answer. If you don't have a spare in stock, and you experience a machine breakdown that would need exactly that spare, then this could cause an extra down time.
How much does that extra down time cost the company? It depends whether you can or cannot recover it, which in turn depends on whether the bottleneck is the production capacity of the market.
If production capacity is the bottleneck, then you cannot recover from that extra down time, and you will experience a loss of sales. Therefore you will experience an opportunity cost that equals the hourly contrubution margin x the extra downtime duration in hours (you can easilty switch to days if required).
If the market absorpion is bottleneck, so by definition you can recover the lost production, and you will not experience a loss of sales, then the extra cost connected to the stockout event corresponds to all additional costa that would not be experienced if the stockout had not occurred, such as re-scheduling, extra-time work, etc. In this last case you could as well determine that there is little or no extra cost connected to the stockout.
Thank you, best regards
how can i find the derivative function of the total cost TC=X2CH/2Q-(Q-X)CS/2Q+DCO/Q
Finf the change in total cost /change in quantity
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