In-transit inventory costs

In-transit inventory is defined as the inventory of products that is held due to transportation lead time. This can be thought of as costs being incurred at the links between sites. It is also referred to as work in process (WIP) inventory when dealing with production.

There is cost associated with the carrying of inventory off-sites as well. The general cost of capital formula shown above is used, where the average inventory is simply the throughput on the transportation lane. The time period in this case would be equal to the actual transportation time in days.

Transportation-based in-transit inventory

The calculations used for in-transit inventory in the InterSite Flows and Customer Flows tables are as follows.

In-transit inventory

• in-transit inventory = throughput / period length * transport time

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. The Transport Time from Transportation Policies is used. If this value is not populated, it is calculated as the Distance divided by the Asset Speed. Asset Speed is based on the Default Transport Speed in Model Settings, unless a transportation asset with Speed defined is assigned to the mode on the Transportation Policy.

In-transit inventory holding cost

• in-transit inventory 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. The value in the Inventory Policies Multi-Period value will override the more general value in the Inventory Policies table. The value in the Inventory Policies table will override the more general value in the Products 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. The rate in the Inventory Policies Multi-Period value will override the more general rate in the Inventory Policies table. The rate in the Inventory Policies table will override the more general rate in the Model Settings.

For example, if you have the following values:

The in-transit inventory will be 1000 / 31 * (16/24) = 21.5

The in-transit inventory holding cost will be 21.5 * 5 * (12/100) * (31/365) = 1.09

Production-based in-transit inventory

The calculations used for production-based WIP in-transit inventory in the Inventory output table are as follows.

In-transit inventory

in-transit inventory = production flow units * minimum{production lead time, time remaining in the model horizon} / (2 * period length in days)

In-transit inventory holding cost

in-transit inventory 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. The value in the Inventory Policies Multi-Period value will override the more general value in the Inventory Policies table. The value in the Inventory Policies table will override the more general value in the Products 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. The rate in the Inventory Policies Multi-Period value will override the more general rate in the Inventory Policies table. The rate in the Inventory Policies table will override the more general rate in the Model Settings.

For example, if you have the following values:

The in-transit inventory will be 1000 * 3 / (2 * 31)= 48.38

The in-transit inventory holding cost will be 48.38 * 5 * (12/100) * (31/365) = 2.46