Inventory economics and integrated handoff

Inventory costs and supply feasibility belong in the same discussion. A cheap lot can be too large for the shelf. A full shift can still lack parts. A plan with enough expected output can still miss a customer on a bad yield day. We will use two small Northstar cases to connect the money view with the operating view, while keeping each number in its own unit.

First consider replacement lids. Northstar uses twelve hundred lids a year. Each order costs twelve dollars to place, no matter how many lids it holds. Keeping one lid costs three dollars a year. We assume stable use, one lot arriving at once, no shortages, and the same unit price for every lot. Those assumptions let us see a simple tradeoff.

A bigger lot means fewer orders. It also means more stock waiting on the shelf. With lot size Q, the number of orders per year is annual demand divided by Q. Average cycle stock is Q divided by two. Multiply the first by the cost per order and the second by the annual cost per unit held. Add the two to compare yearly relevant cost.

For a lot of one hundred, there are twelve orders a year. Ordering cost is one hundred forty four dollars. Average cycle stock is fifty, so holding cost is one hundred fifty dollars. Total relevant cost is two hundred ninety four dollars a year. For a lot of eighty, ordering costs one hundred eighty and holding costs one hundred twenty. The total is three hundred.

The basic economic lot formula gives about ninety eight lids. But lids come in packs of twenty. We test feasible nearby lots rather than buying a fraction. One hundred beats eighty here. If storage allows only eighty, one hundred is not a choice. The best feasible result can differ from the neat formula. Always put the real limit back into the decision.

If a constant buffer of twelve lids is added, it costs thirty six dollars a year at the stated holding rate. That is separate from cycle stock. It adds the same cost to each lot choice in this case. If the unit price changes with lot size, purchase cost must also be included. We excluded it only because the price and total annual quantity were the same across choices.

Now move to the production handoff. Northstar needs twenty nine good bottles. Expected yield is ninety seven percent. Divide twenty nine by that yield and round starts up to thirty. Thirty starts imply twenty nine point one expected good bottles. Expected does not mean guaranteed. A real run produces a whole number, and a poor run may leave a gap.

For this exercise, thirty qualified input sets are ready, one per start. Do not confuse raw input sets with good bottle equivalents from an earlier case. Each start uses twelve run minutes. Thirty starts take three hundred sixty minutes. One changeover adds thirty, for total load of three hundred ninety. A usable shift is four hundred eighty minutes, leaving ninety minutes of headroom.

That load check is useful but not a full schedule. Parts must arrive before the work. Staff and tools must be ready. The quality check and truck cutoff still matter. Two changeovers would use four hundred twenty minutes. A lower expected yield of ninety percent would need thirty three starts for at least twenty nine expected good units, with four hundred twenty six minutes of load if there is one changeover.

In your lab, compare four weeks under the base yield, lower yield, more changeovers, and both stresses together. Flag a load above the usable shift. Also flag a plan that has enough machine time but too few input sets. These are different problems and need different actions.

The final handoff should name the demand version, backlog, good unit need, input sets, starts, expected output, load, and shipment date. Add the cost of any recovery and the risk that remains. Give each open issue an owner and a check time. A useful plan lets the next person act with clear facts, while keeping the limits of those facts in view.

One final check is to read the handoff as if you must run the shift yourself. Can you find the input sets, the first start time, the load, and the open yield risk? If not, add the missing fact.

1. Annual tradeoff

   Order and holding cost curves with candidate lots

   • Demand 1200
   • Order 12
   • Hold 3
2. Feasible lots

   Eighty and hundred cost cards

   • Q 80 costs 300
   • Q 100 costs 294
   • Check storage
3. Separate stock roles

   Cycle stock and buffer blocks

   • Q divided by 2
   • Buffer separate
   • Consistent year
4. Yield bridge

   Starts pass to expected good output

   • Need 29
   • Starts 30
   • Expected 29.1
5. Time bridge

   Run and setup bars fit inside shift

   • Run 360
   • Setup 30
   • Headroom 90
6. Shared handoff

   Decision card with risk and owner fields

   • Units and dates
   • Cost and service
   • Open conditions