Sourcing costs

Sourcing costs are associated with sourcing products from an upstream member of a supply chain. These costs are in the form of fixed and variable costs of placing an order with another site, or costs associated with making products to order at the manufacturing site.

In a simple model with 3 types of sites, there are three methods of incurring sourcing costs as illustrated above.

  • When a customer (CZ) places an order with a DC, it may incur ordering costs.
  • When a distribution center (DC) places an order with a manufacturer (MFG), it may incur ordering costs.
  • When a manufacturer (MFG) issues an order to produce goods, it may incur additional costs.

This may progress further upstream in cases when more players are added to the supply chain, such as suppliers.

For Network Optimization, use the Unit Sourcing Cost in the Sourcing Policies tables. As this is an optimization, sourcing cost is defined per unit of products ordered upstream.

Depending on the cost structure, these costs can be entered using the appropriate method:

  1. Static cost. To input fixed values of Unit Sourcing Cost, simply enter the number.
  2. Distribution. In the case where the Unit Sourcing Cost follows a normal distribution pattern, select the Normal distribution and enter the mean and standard deviation. The cost is written using the value of the mean.
  3. Input pipes. Input pipes are very useful when Unit Sourcing Cost data is best entered by linking an external source to the table.

For Simulation, use the Unit Sourcing Cost in the Sourcing Policies tables. The Unit Sourcing Cost is defined per order placed upstream.

Depending on the cost structure, these costs can be entered using the appropriate method:

  1. Static cost. To input fixed values of sourcing cost, simply enter the number.
  2. Distribution. In the case where the sourcing cost follows a distribution pattern, select the appropriate distribution or enter the distribution in the appropriate format:
    • Normal – Probability follows a standard bell curve. Enter the mean and standard deviation in the format "N(mean,stdev)".
    • Exponential – Enter the mean in the format "E(mean)".
    • Uniform – Enter the number and range in the format "U(number,range)".
    • Triangular – Enter the minimum, mode and maximum in the format "T(min,mode,max)".
    • Poisson – enter the mean in the format "P(mean)".
    • Lognormal – enter the mean and standard deviation in the format "L(mean,stdev)".
    • Bounded Normal – enter the mean, standard deviation, minimum, and maximum in the format "BN(mean,stdev,min,max)".
    • Bounded Exponential – enter the mean and maximum in the format "BE(mean,max)".
    • Bounded Lognormal – enter the mean, standard deviation, minimum, and maximum in the format "BL(mean,stdev,min,max)".
  3. Input pipes. Input pipes are very useful when sourcing cost data is best entered by linking an external source to the table.

Last modified: Wednesday May 15, 2024

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