BUSINESS AND ENGINEERING EXPERTS

PROJECT

OPTIMAL BATCH SIZE (KPI)

ALBAAD GERMANY GmbH

Project Engineer: Joost Mentik

Students
Diana Zúñiga
Mario Mora

Professor Supervisor
Zoilamérica Ortega
PROJECT BACKGROUND ALBAAD
• + 400 Products
• Machines are setting up every 12 hours avg. (High costs)
• Operators working in packaging and set up machines

ALBAAD’s actual scenario does not have a good sales volume.

It differs from month to month around 20%-50%.
( calculation most efficient but needs to fit and be consistent )

Sales numbers are changing from month to month

KPI required

Lead to use a KPI to meet the target for

OPTIMAL BATCH SIZE
OBJECTIVES AND SCOPE
• Optimal Batch Size
• Search the right formula that fulfill the needs and business case
Optimal Batch Size
which formula is best
Formulas for a constant sales
volume?
Advantages Disadvantages

With the use of

Questions to ask about:
different formulas, o Sales Volume
we will need o Stock Levels
different data o Packages per pallet

# of pallets to calculate Logistics Costs in every situation

# of packages to calculate Batch Sizes
OBJECTIVES AND SCOPE

• Propose an adequate formula for the business need

• Use the calculation for every product
• Capable to do a massive calculation
• Give the advice on how to progress
PROJECT METHODOLOGY Waterfall Model
▪ Objectives and scope
▪ Task planning and systematization
(necessary steps to achieve it)

1- Data Collection:
• Yearly Demand: # packages per year
• Set up Time: (min) to calculate set up costs
• Equipment/Machine/Process: to determine costs of logistics
• Customer: price for pallets per day?
• Cost for unit: per package (raw material taxes?)
PROJECT METHODOLOGY ▪ Task planning and systematization
2- Research Tools:
• Economic Order Quantity (EOQ) Formula ( Wilson’s model )
D = Annual demands (units)
2∙𝐷∙𝑆 S = Cost per Order
𝐸𝑂𝑄 = I = Holding Cost
𝐼∙𝐶 C = Cost per Unit

This formula balances changeover costs against inventory costs.

Advantages Disadvantages
- It is a simple formula to apply. - Assumes that the cost of raw materials, company's
- It allows to optimize the company's costs. demand and maintenance costs are constant.
- It helps to avoid overstock circumstances. - It does not consider possible volume or order size
discounts. Leaving this variable aside, it ignores the
possibility of increasing the order quantity to take
advantage of a price reduction.
- It is not useful for companies that have seasonal
increases in demand.
PROJECT METHODOLOGY ▪ Task planning and systematization
2- Research Tools:
• Optimal Batch Quantity (OBQ) Formula
2∙𝑌𝑒𝑎𝑟𝑙𝑦 𝐷𝑒𝑚𝑎𝑛𝑑∙𝑆𝑒𝑡 𝑢𝑝 𝑇𝑖𝑚𝑒
𝑂𝐵𝑄 = 𝐷𝑜𝑤𝑛𝑡𝑖𝑚𝑒 𝐶𝑜𝑠𝑡 / (𝑞𝑡𝑦 𝑜𝑓 𝑝𝑎𝑙𝑙𝑒𝑡𝑠 ∙365) + (cost for unit ∙ yearly demand)
60∙
𝑆𝑡𝑜𝑟𝑎𝑔𝑒

This formula determines the quantity of units that can be produced at the lowest
average cost in a particular batch or product run.
Advantages Disadvantages
- It makes sure that the goods produced meet
the level of demand of goods in the market.
- It will also help to maintain and reduce the
quantity of output in inventory.
- It also helps to minimize the machine set-
up/get-up time.
- The size of the optimum lot also helps to reduce
the machine costs.
- It will also minimize the clerical costs.
- It also gives manufacturing units the advantage
of economies of scale.