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

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. -A key to reducing cycle inventory is

Which of these managerial levers should be used to reduce large lots associated with the fixed cost of production?

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

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. -Drought conditions spike demand during the summer to an annualized rate of 27,000 cans per year and the price rises to $12 per can.If the ordering cost per lot is 75 cents,what is the holding cost percentage?

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?

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

A key to reducing lot size without increasing costs is to

Which of these managerial levers should be used to reduce large lots associated with the fixed cost of lot-sized based discounts?

Cycle inventory exists because producing or purchasing in large lots allows a stage of the supply chain to exploit economies of scale and thus increase cost.

________ is the practice whereby a firm charges differential prices to maximize profits.

Scenario 11.4 - The Gutter A rodent infestation has left a landlord with a major cleanup job;in fact,the cleanup will consist of ripping out all the walls and ceilings of an 1860 square foot house to replace them.A trip to the local home improvement store reveals that 4'x8' sheets of drywall have three price points as indicated in the table.Another consideration for the landlord is that he is equipped with only a humble half-ton pickup truck,that can hold at most 20 sheets.His truck sips fuel,so he considers only wear and tear on his vehicle at $5 to haul all the sheets he will use for the job.The holding percentage is 20%.The landlord believes the entire job - all walls and ceiling - will require 10,080 square feet of drywall. Purchase Quantity Price Per Sheet 1-20 \ 9.40 21-100 \ 9.30 101 or more \ 9.20 -Consider the $9.40 per sheet figure as the base price and use the information in Scenario 11.4 to answer the following question.What percentage discount from the base price results in an optimal order quantity of 101 sheets?

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 average inventory if they order at the optimal order quantity?

Replenishment orders in multi-echelon supply chains should be

Lot sizes and cycle inventory do not affect the flow time of material within the supply chain.

The effects of fixed costs associated with production or purchasing,quantity discounts offered by suppliers,and short-term price discounts offered by suppliers on lot sizing decisions must be understood by a supply chain manager.

The retailer can justify the forward buying when

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?

A discount is volume-based if the pricing schedule offers discounts based on the quantity ordered in a single lot.

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?

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