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

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 -Use the information in Scenario 11.4 to determine the total cost (including the cost of the drywall)resulting from purchasing the optimal number of sheets per order.Assume he can buy only an integer-multiple of sheets.

The price paid per unit is referred to as

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

The practice where a firm charges differential prices to maximize profits is

Inventory holding costs would include which of the following?

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 cost of the inventory policy (excluding cost of goods)if the diner orders at the economic order quantity?

Discuss the role of cycle inventory in the supply chain.

Trade promotions lead to a significant ________ in lot size and cycle inventory because of forward buying by the ________.

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

In a supply chain for commodity products,in order to maximize supply chain surplus,the objective of supply chain members should be to

Which cost should only include receiving and storage costs that vary with the quantity of product received?

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

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?

For products where the firm has market power,coordination in the supply chain can be achieved and supply chain profits maximized through the use of

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?

The costs considered in lot sizing decisions include material cost,fixed ordering cost,and manufacturing cost.

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 -After a recent tornado,the home improvement store eliminates the quantity discount benefit and raises the price per sheet of drywall to $15.Use the information in Scenario 11.4 to determine the best number of sheets to purchase.

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

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 flow time of a half cup of peas if the diner orders at the economic order quantity?

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