Exam 11: Managing Economies of Scale in a 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.

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 holding cost resulting from purchasing the optimal number of sheets per order.Assume he can buy only an integer-multiple of sheets.

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 average inventory level resulting from purchasing the optimal number of sheets per order.Assume he can buy only an integer-multiple of sheets.

Quantity discounts lead to

The goal of trade promotions is to

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

In a multiechelon supply chain,the integer rule calls for an integer multiple of retailers to be serviced by each distributor.

The supply chain profit is higher if each stage of the supply chain independently makes its pricing decisions with the objective of maximizing its own profit.

Which of these managerial levers should be used to reduce large lots associated with the fixed cost of order placement and receipt?

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.

Ordering costs would include which of the following?

When demand is steady,cycle inventory and lot size are related as

Aggregating across products,retailers,or suppliers in a single order allows for a reduction in lot size for individual products because fixed ordering and transportation costs are now spread across multiple products,retailers,or suppliers.

Which of these is typically NOT considered a driver of lot sizing decisions in the supply chain?

Transportation costs due to aggregation can be minimized by coordinating orders coming from the same supplier.

Pricing schedules with all unit quantity discounts encourage retailers to

A price discount where the discount is based on the total quantity purchased over a given period,regardless of the number of lots purchased over that period,is

In a multiechelon supply chain,it is important for a distributor to distinguish between retailers with high demand and retailers with low demand.

The appropriate managerial lever to use to reduce large lots associated with lot size-based discounts is to

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