Exam 11: Managing Economies of Scale in the Supply Chain: Cycle Inventory

Average flow time resulting from cycle inventory = Cycle Inventory/Demand = Q/2D.

Pricing schedules with all unit quantity discounts encourage retailers to

Replenishment orders in multi-echelon supply chains should be

Cycle inventory is primarily held to take advantage of economies of scale and reduce profit within the supply chain.

Discuss the role of cycle inventory in the supply chain.

Pricing schedules with all unit quantity discounts encourage retailers to increase the size of their lots, which reduces the average inventory and flow time in a supply chain.

For products where the firm has market power, two-part tariffs can be used to achieve coordination in the supply chain and maximize supply chain profits.

Scenario 11.3 - Sammy's Sammwiches Sammy's is the hot new lunch spot among the hipsters, who flock there at noon for their artisanal peanut butter and jelly sandwiches, which sell for $12.95. The sandwiches are made from two slices of their own artisanal bread, which they bake continuously throughout the day at a rate of seven loaves an hour (each loaf contains twenty slices). The actual cost of a loaf of bread is $1 and the cost to hold a loaf is 80%, since freshness is important in baking as well as to hipsters. The cost to run a new batch of a dough is $3 per loaf. Sammy's sells their sandwiches at a rate of fifty per hour. -What is the optimal batch size to produce?

Discounts related to price discrimination will be

In the pricing schedule for marginal unit quantity discounts,

Tastee Mart sells Frostee Flakes. Demand for Frostee Flakes is 500 boxes per week. Tastee Mart has a holding cost of 30 percent and incurs a fixed cost of $100 for each replenishment order it places for Frostee Flakes. Given that cost is $2 per box of Frostee Flakes, how much should Tastee Mart order in each replenishment lot? If a trade promotion lowers the price of Frostee Flakes to $1.80 for a month, how much should Tastee Mart order given the short-term price reduction?

Scenario 11.1 - Bubble and Squeak The rising popularity of bubble and squeak as a breakfast item on the menu has resulted in a steady demand for peas. Over the course of the past week, 457 patrons have ordered the hearty breakfast and each serving contains a half cup of English peas. It costs two cents to hold a half cup of peas in inventory for a year and $3 to place an order (remember they come all the way from England!). It takes two weeks to ship a container from England loaded with peas. -What is the optimal order quantity?

A graphical plot depicting the level of inventory over time is

Although a forward buy is often the retailer's appropriate response and increases their own profits, it usually increases demand variability with a resulting increase in inventory and flow times within the supply chain.

The quantity of inventory that a stage of the supply chain either produces or purchases at a given time is

Reduction of fixed cost may be achieved by aggregating lots across multiple products, customers, or suppliers.

Scenario 11.2 - S&H Mercantile The S&H Mercantile in Luther is the only game in town for a number of items, and tries valiantly to use only the storage space needed to display items since there is no stock room in the back of the store. One popular item, a 16-ounce can of dehydrated water, takes up 20 square inches of shelf space. The shelf space available for this item measures five feet by four feet. The store manager would like to order a quantity that can fill the shelf space without stacking and without needing to store cans elsewhere in the store. The amount ordered should all be on display once the S&H runs out and ideally would arrive just as the last can is purchased. -Suppose the annual demand is 8,000 units and the cost per can is $3 with a holding cost of 10%. What is the required order cost per lot?

If demand increases by a factor of k, the optimal lot size increases by a factor of

Which cost takes into account the return demanded on the firm's equity and the amount the firm must pay on its debt?

Scenario 11.1 - Bubble and Squeak The rising popularity of bubble and squeak as a breakfast item on the menu has resulted in a steady demand for peas. Over the course of the past week, 457 patrons have ordered the hearty breakfast and each serving contains a half cup of English peas. It costs two cents to hold a half cup of peas in inventory for a year and $3 to place an order (remember they come all the way from England!). It takes two weeks to ship a container from England loaded with peas. -How many orders per year does the diner place if they order at the economic order quantity?