Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

11.4.2c Optimum Length of Order Cycle

Intended learning outcomes: Present the optimum length of order cycle.

Continuation from previous subsection (11.4.2b)

Instead of an optimum batch size, we can also calculate an optimal time period for which an order or a batch covers demand.

The optimum order interval or optimum length of order cycle is an optimum period of time for which future demand should be covered.

This length is defined according to the formula in Figure From this formula, it is immediately apparent that the optimum length of the order cycle — and the optimum batch size in Figure — rises less than proportionally with increasing setup costs, and declines less than propor­tionally with increasing turnover. Thus, for example, if we set the value for the root of (2 × CS/p) at 40, the characteristic figures for optimum length of order cycle as a function of the value of turnover are those in Figure

Fig.       Optimum length of order cycle.

Fig.       Sample characteristic figures for length of order cycle as a function of the value of turnover.

Unless we can reduce setup costs decisively, a very large length of order cycle will result in low turnover. In practice, however, when the range of demand coverage is very long, the depreciation risk increases disproportion­ally. For this reason, upward limits are set for the length of the order cycle, and thus as well for the batch sizes, for items with a small turnover. This is, incidentally, the simplest and most common method in practice to control nonlinear patterns of carrying cost: for example, carrying cost that jumps steeply when inventory exceeds a particular volume. The conside­ration of the length of order cycle is also an important batch-sizing policy in deterministic materials management (see Section 12.4).

Course section 11.4: Subsections and their intended learning outcomes