Overflow Storage Decision
Compare flexible overflow storage against a permanent capacity expansion on annualized cost, and see how the planning horizon changes which one wins.
How this works
A capacity gap can be absorbed two ways: pay a recurring per-unit fee for flexible overflow storage, or pay a one-time capital cost to permanently expand, plus ongoing operating cost. Which is cheaper depends on the planning horizon, a recurring fee adds up over time while capital cost is fixed regardless of how long it is held. This engine makes the horizon an explicit input so the crossover between the two options is visible.
Key terms
- Overflow storage: a flexible, no-capital option that costs a recurring rate per unit per year.
- Permanent expansion: a one-time capital cost, amortized across the planning horizon, plus its own ongoing operating cost.
Assumptions
- Capital cost amortizes in a straight line across the horizon, no discount rate applied
Limitations
- Two options only, not a phased or partial-expansion model
- Does not account for inflation in the overflow rate over a long horizon
Sources
Blank and Tarquin, Engineering Economy, standard capital-versus-operating-cost amortization treatment, the same annualizing principle Repair vs Replace Equipment already applies.
Worked example
A 5,000-unit capacity gap costs $40,000/year in overflow storage regardless of horizon. A $150,000 permanent expansion plus $10,000/year operating cost annualizes to $60,000/year over a 3-year horizon, more than overflow storage, but only $25,000/year over a 10-year horizon, cheaper than overflow storage. The same numbers favor opposite options depending only on how many years the decision is being planned over.
Common use cases
- Deciding between a temporary and a permanent fix for a capacity shortfall
- Checking how sensitive the storage decision is to the assumed planning horizon
- Continuing from Bulk vs Racked Storage Comparator's storage strategy into a capacity-gap decision