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

11.4.4b Extensions of the EOQ Formula: Joint Replenishment

Intended learning outcomes: Produce an overview on joint replenishment: kit materials management and collective materials management.

Continuation from previous subsection (11.4.4)

3. Joint replenishment is joint planning for a group of related items, treating them as an item family.

Two examples of management of sets of items follow.

3a. In kit materials management, various goods are combined into a so-called (material) kit (because of their joint use in particular assemblies or products) and managed as a group.

The individual optimum batch size for an element i from a kit S with annual consumption AC of S results from the formula in Figure

Fig.       Individual optimum batch sizes for an element i of kit S with annual consumption ACS.

Instead of these individual batch sizes, we may determine a kit batch size XS using the compromise formula in Figure

Fig.       Kit batch size XS.

If the component kits are very heterogeneous with respect to the two factors in the batch size formulas above, we can form more homogeneous planning subgroups that are then used for separate batch sizings. Another possibility is to form an economic batch for the most value-intensive components. We then set the batch size of less value-intensive materials positions as whole-number multiples of this batch for correspondingly less frequent procurement.

3b. In collective materials management, we form material groups, or planning groups, whose setup and ordering costs can be reduced, if the batches are ordered collectively.

Valid criteria for collective materials management include:

  • The same supplier for purchased parts (taking advantage of simplified administration and/or a total invoice discount)
  • The same production technique for in-house production (e.g., for a product family), whereby simplified machine setup achieves a reduction in the total setup costs

In the case of collective materials management, within a planning group materials managers must determine an average reduction in the setup and ordering costs as a percentage. As soon as an item is to be ordered, a check is made of all other items of the same planning group. If the order of a batch is due in the near future anyway, it can be ordered now through an early order release. This should be a reduced batch size, which is calculated by using the reduced setup and ordering costs.

Course section 11.4: Subsections and their intended learning outcomes