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

For commodity products where price is set by the market, manufacturers can use lot size based quantity discounts to achieve coordination in the supply chain and decrease supply chain cost.

Cycle inventory is the physical inventory in the supply chain due to either production or purchases demanded by the customer.

The price paid per unit is referred to as

Ordering costs would include which of the following?

Aggregating across products, retailers, or suppliers in a single order allows for a reduction in lot size for individual products because

Cycle inventory exists in a supply chain because different stages exploit economies of scale to lower total cost.

Average flow time resulting from cycle inventory is equal to

The XYZ Company has an assembly plant in Cincinnati and its parts plant in Indianapolis. Parts are transported from Indianapolis to Cincinnati using trucks. Each shipment costs $100. The Cincinnati plant assembles and sells 300 finished products each day and operates 50 weeks a year. Part #456 costs $50 and XYZ Company incurs a holding cost of 20 percent per year. How many of part #456 should XYZ Company put in each shipment? What is the cycle inventory of part #456 at XYZ Company?

Discuss the characteristics of a successful multi-echelon supply chain.

Scenario 11.4 - Caffeine and Sugar With a fixed cost of $100 per order, Nathan decided it was vital to get his money's worth. His monthly demand for energy drinks was 10,000 bottles and holding cost was estimated at 20% of unit cost. The mail order company offered him a couple of possibilities - he could pay $4.00 per bottle for orders of up to 10,000 bottles. After that threshold, he would pay only $3.98 per bottle, and if he ordered 20,00 or more bottles in an order, he would pay only $3.96 per bottle. -What is the best total cost that Nathan can incur?

To reduce the optimal lot size by a factor of k, the fixed order cost S must be reduced by a factor of k.

Economies of scale in purchasing and ordering motivate a manager to

The goal of trade promotions is to

The retailer can justify the forward buying when

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. -The diner orders at the economic order quantity but an analysis of dates on the cans of peas revealed that the flow time was actually 5 weeks. A quick check revealed that the computer had automatically adjusted up the economic order quantity as demand had risen during the past few months. What is the new weekly demand for English peas?

The cost of carrying one unit in inventory for a specified period of time, usually one year, is referred to as

Cycle inventory is primarily held to

The average inventory in the supply chain due to either production or purchases in lot sizes that are larger than those demanded by the customer is

Marginal unit quantity discounts have also been referred to as multi-block tariffs.

A firm is often better served by ordering a convenient lot size close to the economic order quantity rather than the precise EOQ.