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 number of sheets of drywall required.

Which cost should reflect the incremental change in space cost due to changing cycle inventory?

Discounts related to price discrimination will be

All costs that do not vary with the size of the order but are incurred each time an order is placed are referred to as

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?

If decisions made at the retailer and supplier stage serve to maximize total supply chain profits,the supply chain is

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

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 cost to run Sammy's at the economic production lot size?

Total ordering and holding costs

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

In a supply chain where each stage of the supply chain independently makes its pricing decisions with the objective of maximizing its own profit,

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 order quantity for Nathan to use?

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.

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

Using EDLP is the best way to reduce costs attributed to shipping.