Automatic Cost Generation 

Use

Costs play an essential role for optimization-based planning in Supply Network Planning (SNP). The optimizer selects the plan with the lowest total costs from all the permitted production and distribution plans. This means that the optimizer also makes business decisions based on the costs involved for covering a demand at a certain point in time, for example.

You can provide the optimizer with the costs for planning by specifying your actual costs such as production and transportation costs in the system. You can also define control costs that are in accordance with your business goals. For the planner, however, the conversion of business goals into control costs is not easy.

With the automatic cost generation function, you can easily generate all the control costs relevant to the optimizer (that is, the cost model). Thesystem generates these costs automatically based on the business goals you have defined. The system requires the main goal to be the maximization of the service level. You can also define the following goals:

·        Consideration of demand and product priorities

·        Consideration of procurement priorities

In addition, you can use this function to quickly and easily create an optimization-based production plan. To create a finite (capacity-based) production plan, you only have to make a few additional settings (such as the consideration of capacities).

Features

Generating the Cost Model

The system generates the following control costs:

·        Storage costs

·        Production costs, that is, costs of the production model (PPM) or of the production data structure (PDS).

·        Product-specific transportation costs

·        Procurement costs

·        Penalty costs for shortfall of safety stock

·        Penalty costs for non-delivery

·        Penalty costs for late delivery

In order for the system to be able to calculate the costs for a late delivery, you must define a maximum delay in the product master data on the SNP 1 tab page.

The system ignores all the costs you may have defined in the master data. They remain unchanged in the system even after cost generation, however.

The system does not generate the following costs, because it would require additional information from the planner or because the costs are only relevant to complex scenarios:

·        Cost functions (production, shipment, procurement)

·        Costs for means of transport

·        Costs for the use of the available capacity of resources (costs for using the normal and maximum available capacities or for falling short of the minimum available capacity)

In addition, the system does not consider the cost profile for weighting costs that you can define for optimization-based planning.

Properties of the Generated Cost Model

The system ensures the following properties of the generated cost model:

·        The model has no anomalies.

The system defines the costs such that undesired effects do not arise, such as:

¡        Not covering a demand due to too low penalties costs for non-delivery

¡        Planning a shipment due to too low costs at the destination location

¡        Planning a shipment to save storage costs

The system also covers the demands as timely as possible.

·        The model is stable.

The costs are, for example, independent of period length and transaction data.

·        The model is coherent.

For example, the transportation costs increase proportionally to the shipment length and the product value increases with the depth of production.

The system automatically uses the value 1 for the value of raw products (products without input products). If you want the system to base the calculation of the product value on the actual storage costs, you can make this setting in the SNP or deployment optimizer profiles on the Automatic Cost Generation tab page.

The system cannot guarantee this model property, because the first two properties have higher priority and it is not always possible to guarantee all three.

The generated cost model is independent from the costs defined in the master data (except for possible consideration of storage costs). The system does not support a combination of these two cost models (for example, completion of the master data cost model).

Definition of the Business Goals

The system calculates the costs based on the business goals you have defined. For further information see Definition of the Business Goals.

Actions

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       1.      Define your goals for optimization-based planning as described.

       2.      If, for example, you want to create a finite (capacity-based) plan, set the corresponding indicator for the consideration of capacity restrictions on the General Restrictions tab page of the SNP or deployment optimizer profile.

       3.      Set the Automatic Cost Generation indicator in the SNP or deployment optimizer profile.

       4.      Execute an SNP or deployment optimization run. For more information, see Running the Optimizer in the Background, Running the Optimizer from the Interactive Planning Desktop, or Running Deployment Optimization.

       5.      Display the application log that is in the Results Log section and contains information about the generated costs. For more information about optimization logs, see Application Logs for Optimizers.