*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 11.4.4.4.

**Fig. 11.4.4.4** Individual optimum batch sizes for an element i of kit S with annual consumption AC_{S}.

Instead of these individual batch
sizes, we may determine a kit batch size X_{S} using the compromise
formula in Figure 11.4.4.5.

**Fig. 11.4.4.5** Kit batch size X_{S}.

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

##### 11.4 Batch Sizing, or Lot Sizing

Intended learning outcomes: Produce an overview on production or procurement costs, batch-size-dependent unit costs, setup and ordering costs, and carrying cost. Explain optimum batch size, optimum length of order cycle, the classic economic order quantity formally and in practical application. Disclose extensions of the batch size formula.

##### 11.4.1 Production or Procurement Costs: Batch-Size-Dependent Unit Costs, and Setup and Ordering Costs

Intended learning outcomes: Differentiate between batch-size-dependent production or procurement costs and batch-size-independent production or procurement costs.

##### 11.4.1b Carrying Cost

Intended learning outcomes: Explain carrying cost and carrying cost rate. Produce an overview on costs of financing or capital costs, storage infrastructure costs and the risk of depreciation.

##### 11.4.2 Optimum Batch Size: The Classic Economic Order Quantity (EOQ)

Intended learning outcomes: Explain the concept of the economic order quantity (EOQ). Explain variables for the EOQ formula.

##### 11.4.2b The Economic Order Quantity (EOQ) Formula

Intended learning outcomes: Explain the economic order quantity (EOQ) formula. Describe the cost curves as a function of batch size.

##### 11.4.2c Optimum Length of Order Cycle

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

##### 11.4.3 Economic Order Quantity (EOQ) Formula: Sensitivity Analysis

Intended learning outcomes: Present in detail the sensitivity analysis of the EOQ calculation.

##### 11.4.3b Economic Order Quantity (EOQ) and Optimum Length of Order Cycle in Practical Application

Intended learning outcomes: Produce an overview on the practical implementation of the EOQ formula. Identify several factors that influence a maximum or minimum order quantity.

##### 11.4.4 Extensions of the EOQ Formula: Lead-Time Orientation and Discount Levels

Intended learning outcomes: Present lead-time-oriented batch sizing. Describe batch sizing considering discount levels.

##### 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.