In transit inventory

In transit inventory is inventory that is on order but has not arrived. What is commonly known as work in process (WIP) inventory is considered a subset of in-transit inventory.

In transit inventory is calculated by taking the inventory holding cost times the time spent in transit outside of a specific site. It is considered the property of the destination site, with exception of customers, as Customers cannot hold inventory. This is demonstrated in the following diagram:

In transit inventory refers to the inaccessibility of a product in transit between two sites. For example, a batch of helicopters built in Japan has to be delivered to a client in France. The shipping time is 5 weeks, and during this period the product is classified as in-transit inventory and incurs a holding cost. The in transit inventory is calculated as follows:

Flow Units * minimum of (model remaining days until the end of horizon, Transportation Policy Transport Time in days) / period length in days

where:

throughput is the Flow Units

period length is the number of days in the current period

transport time is the Service Hours, expressed as days.

In transit inventory holding cost is calculated as follows:

in transit inventory holding cost = in transit inventory * product value * carrying cost % * (period length/365)

where:

product value is the Unit Value from the Products table, or the Product Value from the Inventory Policies or Inventory Policies Multi-Period table.

carrying cost % is the Inventory Carrying Cost % from Model Settings, or the Inv Carrying Cost % in the Inventory Policies or Inventory Policies Multi-Period table.

Reporting of in transit inventory reflects this difficult compromise for inventory ownership. This inventory is reported in these Network Optimization output tables:

• InterSite Flows
• Customer Flows

This total is greater than the sum of the flows heading to facilities, because of the other in transit inventory not owned by other sites.