Optimization objective: Minimize processing cost

Minimizing processing cost is one of the fulfillment objectives that IBM® Sterling Intelligent Promising considers when optimizing orders. When this objective is prioritized, fulfillment decisions are based primarily upon the most cost-effective way to process shipments or packages at nodes while still meeting customer expectations.

The processing cost is the amount of money that it takes to fully process an order or release at a node.

Hourly rate × Hours to process a unit × Quantity on assignment = Processing cost

The result of this calculation is multiplied by the weight set for the Minimizing processing cost objective and then factored in optimization.

Sterling Intelligent Promising considers the following factors when optimizing orders based on processing cost:
  • Hourly rate.
  • Hours to process a unit.
  • Quantity on assignment.
To optimize the processing cost of an order, Sterling Intelligent Promising performs the following actions:
  • Improves overall optimization by accounting for labor wages and order processing rates in different locations
  • Assesses the labor efficiency for each fulfillment location during optimization

Example

Consider the following values at the distribution centers:
  • Hourly rate - 20 USD
  • Hours to process a unit - 0.15
Consider the following values at the store:
  • Hourly rate - 30 USD
  • Hours to process a unit - 0.20

Consider that an order is optimized for 2 units and the shipping address is closer to the store than distribution center.

So, the calculation of processing cost for the store and the distribution center are as follows:
  • Processing cost for the distribution center = 20 USD × 0.15 × 2 = 6.00 USD
  • Processing cost for store = 30 USD × 0.20 × 2 = 12.00 USD
Despite the higher processing cost at the store compared to the distribution center, the store is the competitive option due to its proximity to the shipping address that potentially results in lower shipping costs. So, Sterling Intelligent Promising might consider the store as a viable option due to its advantageous location.