The objectives of this process are: to determine total values that allow us to know, approximately, the costs incurred by the supply system and also to determine indicators, which, keeping updated, allow decisions to be made in other processes of the system, such as “Determination of the level Inventory Reliability ”and“ Inventory Management ”.
The costs considered relevant in this process are: acquisition costs, order issuance costs, storage costs, opportunity costs, and inventory breakdown costs. The storage cost added to the opportunity cost is used in some specific processes under the term inventory maintenance cost. Each of these relevant costs are considered as simple or complex items in which different elements of the expenditure concur.
- Specific process "Determination of total costs":
This process totals the relevant costs of the supply system for a given period of time. The expressions that allow obtaining the total costs are:
- Total acquisition cost in the period (Cad):
Cad = cad i * D i {1-1}
where:
n: Number of different items to purchase in the period.
cad i: Cost of acquisition of the i-th type of article.
D i: Total demand for the i-th type of article in the period.
- Total cost of issue in the period (Ce):
Ce = C e1 + C e2 + C e3 + C e4 + C e5 + C e6 + C e7 + C e8 {1-2}
where:
C e1: Estimated cost of models, forms and office supplies. This value is generally negligible.
C e2: Estimated cost of the fuel spent during the transportation of the supplies carried out by the organization and during the order process.
C e3: Estimated cost of energy expended, including that required for lighting and information processing equipment.
C e4: Estimated cost of salary for the staff that handles the ordering process and for the drivers and assistants of the organization's transport teams, who carry out the transfer of supplies.
C e5: Cost for contribution to social security.
C e6: Amortization corresponding to external transport equipment, information processing equipment and communication equipment.
C e7: Cost of the losses, losses and deteriorations suffered by the goods in the transportation process that are attributable to the organization.
C e8: Other monetary expenses are included such as communications, driver's allowances, rental of external transport equipment, payment for freight to the entity that transports the supplies, if it does not constitute part of the acquisition cost.
- Total cost of storage in the period (Cal):
Cal = C a1 + C a2 + C a3 + C a4 + C a5 + C a6 + C a7 + C a8 {1-3}
where:
C a1: Cost of the materials corresponding to containers, packaging and auxiliary materials of containers and packaging, in addition to the estimate of the costs of models, forms, cleaning and office materials incurred by the warehouse.
C a2: Estimated cost of fuel spent by handling equipment during receipt, dispatch, and storage.
C a3: Estimate of the cost of energy expended in the warehouse, including that needed for lighting, air conditioning equipment, information processing equipment and battery charging of handling equipment.
C a4: Estimated cost of salary for all personnel working in the warehouse.
C a5: Cost for contribution to social security.
C a6: That corresponding to the amortization of the buildings and networks for the reception, storage and dispatches, and to the handling, air conditioning, weighing, information processing and storage equipment.
C a7: Cost of the losses, losses, deteriorations and obsolescence suffered by the products in the storage period.
C a8: Includes payment for insurance, taxes, communications and rental of facilities and equipment during storage.
Total opportunity cost (Co):
Co = V (NI) avg * TI {1-4}
V (NI) avg = (cad i * Ni avg i) {1-5}
where:
V (NI) avg: Value of the inventory level that is maintained as an average in the period considered.
IT: Interest rate used by banking organizations.
Ni av i: Average inventory value
- Total inventory maintenance cost (Cm):
Cm = CAl + Co {1-6}
- Total inventory breakdown cost (Cr):
Cr = å cr i {1-7}
where:
k: number of different articles that cause breakage.
cr i: breakdown cost of the i-th item that caused it.
- Total cost of supplies in the period (CTA):
According to the previously calculated values, the total cost of supplies in the period considered is:
CTA = Cad + Ce + Cal + Co + Cr {1-8}
- Specific process "Determination of indicators and unit costs".
The objective of this process is to determine the behavior of the supply costs of each item. The components of it are:
- Acquisition unit cost (cad):
It is the price that the supplier establishes for the item that he supplies. The cost of insurance payment during transportation, customs taxes and freight may be included in it if these are established as a proportion of the sale price of the item:
- Opportunity unit cost (co):
co = cad * Ni avg * TI {1-9}
where:
Ni avg: Average inventory level of the item in the period considered.
IT: Interest rate of banking organizations or tax rate for credit application.
The storage cost is manifested for groups of articles or for the totality of the articles stored without accounting for the proportion of these costs that corresponds to each article individually. To estimate this proportion based on the space occupied, the following indicator is established:
- Storage cost indicator (ica):
ica = Cal / CN {1-10}
where:
Cal: Total cost of storage in the period considered.
CN: Net capacity existing in the warehouse.
- The unit cost of storage (cal) is determined by the expression:
{1-11}
where:
dn: net demand for storage of the item.
a: time intervals covering the period considered.
a ': Average number of time intervals during which the product is stored.
Inventory maintenance unit cost (cm):
cm = co + cal {1-12}
The cost of issuance is manifested in the preparation, transmission and monitoring of the group of orders corresponding to the period under review. In order to estimate the proportion that corresponds to each order or each article, the following expressions are formulated:
- Issuance cost per order (cep):
cep = Ce / Number of orders placed in the period {1-13}.
- Unit emission cost indicator (ice):
ice = Ce / Cad {1-14}
- Unit cost of emission (ce):
ce = cad * ice {1-15}
- The unit cost of supplies (cua) is calculated as:
cua = cad + cal + co + ce {1-16}
- The breakdown unit cost (cr) is calculated in different ways depending on the degree of transformation that the articles undergo in the organization.
For items that do not undergo transformation, that is, they are sold equal to or approximately the same as they are purchased, the breakdown unit cost is estimated as:
cr = pv - (cad + cm + ce) {1-17}
where:
pv: Sale price of the item
The unit cost of rupture is difficult to determine for articles that undergo transformations and / or are component parts of finished products due to the multiple effects that the lack of an article can cause when it is required.
With a view to facilitating the estimation of this cost, it is assumed that once the production of a batch of finished products has been planned, the loss incurred due to lack of items is the profit that the sale of the batch would have represented. In accordance with the above, the breakdown cost (cr) is calculated as:
cr = pvl-cpl-cua {1-18}
where:
pvl: sale price of the batch of products.
cpl: batch production cost.
cua: unit supply cost of the item that causes a break.
- Specific process “Analysis of supply costs”
This process constitutes an important source of feedback for the supply system and for the organization as a whole.
The analysis of costs and the evolution of their behavior over time should allow corrective measures to be taken in each of the processes involved, for which purpose it is convenient to establish a group of indicators that, when evaluated, allow a follow-up of this analysis..
Calculation of Supply or Supply Costs.
Provisioning costs were determined based on the relationships outlined above. They were calculated for the months of January to March 2006.
Table 1 shows the supply costs for the aforementioned months in national currency (MN).
Table 1 Provisioning Costs. January, February and March 2006.
Unit of measure: MP
| Concepts | January | February | March |
| Acquisition Cost | 63084 | 217062 | 136148 |
| Issuance Costs | |||
| Office Supplies Cost | 10.81 | 212.09 | 34.75 |
| Fuel Cost | 925.21 | 938.34 | 684.77 |
| Cost of Staff Salary (Drivers) | 4,969.4 | 4,848.64 | 5,141.34 |
| Cost for Contribution to Social Security (Drivers) | 3208 | 2999.9 | 3,213.34 |
| Depreciation of Transportation Equipment | 150.3 | 133.2 | 150.5 |
| Costs of losses, losses and deterioration (when transporting them) | 0 | 0 | 0 |
| Communications Costs | 0 | 0 | 0 |
| Diet Costs | 234.04 | 544 | 124 |
| Total | 9497.76 | 9,676.17 | 9,348.7 |
| Storage Cost in the Period | |||
| Office Supplies, Packaging and Packaging Cost | 0 | 0 | 0 |
| Energy Cost | 85 | 51.19 | 61.73 |
| Staff Salary Cost (Internal) | 19877.6 | 19394.36 | 20,565.36 |
| Cost for Contribution to Social Security (Internal) | 0 | 0 | 0 |
| Depreciation of Storage Infrastructure | 350.7 | 310.74 | 351.01 |
| Waste, Loss and Impairment Costs (in the warehouse) | 0 | 0 | 0 |
| Tax Expenses (Use of Labor Force) | 6,211.83 | 1,120.20 | 1,285.33 |
| Tax Expenses (Land Transportation) | 0 | 0 | 0 |
| Total | 26525.13 | 20 876.49 | 22263.43 |
| Opportunity cost | |||
| Average Inventory (Daily) | 13,271.5 | 13,550.0 | 13708.2 |
| Bank Interest Rate% | 0.01 | 0.01 | 0.01 |
| Total | 132.72 | 135.5 | 137.1 |
| Total Cost of Procurement | 99 239.61 | 247 750,16 | 167 897.23 |
As a result of this research, supply costs have been calculated for the first time, taking into account all its elements. The organization only considered acquisition costs in its analyzes as the “Purchase Costs” for the period. Regardless of the fact that Acquisition Costs have the highest specific weight in the structure of Provisioning Costs, the author considers that the other elements should be calculated since they represent an important reserve for the reduction of total expenses and make it possible to make comprehensive decisions and contribute to increase the contribution that the provisioning function can make to the company's strategy.
Table 2 shows the organization's sales revenue, as well as procurement costs and total cost.
Table 2 Income, Provisioning Costs, Provisioning Costs by weight of income and total cost.
| INDICATOR | Um | January | February | March |
| Income | MP | 270729.00 | 428142.00 | 216852.00 |
| Provisioning Costs | MP | 99239.61 | 247750.16 | 167897.23 |
| Provisioning Costs By Weight of Income. | Ps | 0.366 | 0.578 | 0.774 |
| Provisioning cost of total cost | Ps | 0.216 | 0.54 | 0.366 |
Previously, when considering only acquisition costs as total purchasing costs, important efficiency reserves in the performance of this management were unknown, the supply costs by income weight are shown below for March. Table 3.
Table 3 Provisioning Costs by Weight of Income for March 2004.
Unit of measure: Ps
| INDICATOR | Before | After |
| Purchase Cost by Weight of Income | 0.627 | 0.774 |
As reflected in the previous Table, the Procurement Cost by Revenue Weight indicator only considered the Acquisition Costs, obtaining as a result 0.627 purchase pesos per revenue pesos, however, when taking into account the supply costs, the result obtained is 0.774, what allows to know in a more objective way the efficiency in relation to the management of purchases.
It is suggested that the analysis carried out should be systematized in other periods, to detect possible causes that adversely affect the behavior of the relevant costs of supply management.
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