GlossaryKind of term: Cost and economicsEconomic batch size
What is the economic batch size?
Economic batch size is the quantity per batch at which the costs that recur with each batch and the cost of holding stock are lowest combined.
The two kinds of cost move in opposite directions as the quantity per run grows. Make more at once and the setup share per part falls, but stock sits on the shelf longer, tying up capital and space, with the risk that a drawing change makes parts obsolete. It is a calculated optimum under assumptions, not a quantity the customer orders.
What does the economic batch size depend on?
The classic rule is the economic order quantity (EOQ), also known as the Harris or Wilson formula and in Dutch practice as Camp's formula: Q = √(2 × D × S / H), with D the annual demand in parts, S the fixed cost per batch and H the holding cost per part per year. It assumes steady demand, a fixed cost per batch, holding cost proportional to stock and no quantity discounts. Where parts are made at a rate not much above consumption, the production variant (EPQ) gives a larger batch. The cost curve is flat around the optimum: rounding to a practical quantity, such as a stock length or a call-off rhythm, costs relatively little.
How does the economic batch size work in practice?
S is what every run incurs again: setup, first-article inspection and order handling. Programming usually drops out on a repeat order with an existing program and then does not belong in S. On a fully loaded machine, setup also costs lost capacity, and S is then higher than setup time times the hourly rate. A customer who orders ten parts every month pays for setup every month under the usual estimating approach. A larger batch with call-offs, or a framework agreement in which you hold the stock, can then lower the cost per part; who carries the stock and the revision risk belongs in that agreement.
What is the economic batch size often confused with?
Economic batch size is not the batch size: the batch size is what you actually make in one run, the economic batch size a calculated optimum. Nor is it a quantity break: the breaks show the price at a few quantities, the economic batch size is the quantity at which total cost is lowest.
How do you see the economic batch size in Blake?
In Blake setup and programming are lines of their own beside material and machining, per piece and per batch, and carry through to the quantity breaks. That gives you the setup cost per batch as part of S; you add first-article inspection and order handling yourself. The result is labelled as an estimate. More on estimating.
Frequently asked questions
How do you calculate economic batch size?
With the EOQ formula: the square root of two times annual demand times fixed cost per batch, divided by the holding cost per part per year. Fixed cost per batch is mainly setup and order handling; programming only if it recurs with each batch.
How much does the unit price fall from 10 to 100 parts?
That depends on how heavily the fixed cost per batch weighs against material and machining per part. That fixed cost is spread over ten times as many parts, and more setups strengthen the effect. Material prices and cycle time can also change with quantity.