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Chapter 10
Managing Economies of Scale in the Supply Chain: Cycle Inventory
True/False
1. A lot or batch size is the quantity that a stage of the supply chain either produces or purchases at a given time.
Answer: True
Difficulty: Moderate
2. Cycle inventory is the physical inventory in the supply chain due to either production or purchases demanded by the customer.
Answer: True
Difficulty: Moderate
3. When demand is steady, cycle inventory and lot size are related as follows:
Cycle Inventory = Lot Size x 2 = Q*2.
Answer: False
Difficulty: Moderate
4. Cycle inventory is primarily held to take advantage of economies of scale and reduce profit within the supply chain.
Answer: False
Difficulty: Easy
5. Increasing the lot size or cycle inventory often decreases the cost incurred by different stages of a supply chain.
Answer: True
Difficulty: Moderate
6. The total annual cost is the sum of annual material cost, annual order cost, and annual holding cost, and is given as TC = CD + (D/Q)S + (Q/2)hC.
Answer: True
Difficulty: Moderate
7. The optimal lot size is referred to as the economic order quantity (EOQ). It is denoted by Q * and is given by the equation: Q* = Ö2DS/hC.
Answer: True
Difficulty: Moderate
8. Total ordering and holding costs are unstable around the economic order quantity.
Answer: False
Difficulty: Moderate
9. To reduce the optimal lot size by a factor of k, the fixed order cost S must be reduced by a factor of k.
Answer: False
Difficulty: Moderate
10. 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.
Answer: True
Difficulty: Moderate
11. A key to reducing cycle inventory is the reduction of lot size.
Answer: True
Difficulty: Easy
12. A key to reducing lot size without increasing costs is to reduce the holding cost associated with each lot.
Answer: False
Difficulty: Moderate
13. Reduction of fixed cost may be achieved by aggregating lots across multiple products, customers, or suppliers.
Answer: True
Difficulty: Easy
14. A discount is volume-based if the pricing schedule offers discounts based on the quantity ordered in a single lot.
Answer: False
Difficulty: Hard
15. Pricing schedules with all unit quantity discounts encourage retailers to increase the size of their lots, which reduces the average inventory and flow time in a supply chain.
Answer: False
Difficulty: Moderate
16. 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.
Answer: False
Difficulty: Moderate
17. Discounts related to price discrimination will be lot size based.
Answer: False
Difficulty: Hard
18. Price discrimination is the practice where a firm charges differential prices to maximize profits.
Answer: True
Difficulty: Easy
19. 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.
Answer: True
Difficulty: Moderate
20. Trade promotions lead to a significant increase in lot size and cycle inventory because of forward buying by the retailer.
Answer: True
Difficulty: Moderate
Essay/Problems
1. Discuss the role of cycle inventory in the supply chain.
Answer: The primary role of cycle inventory is to allow different stages in the supply chain to purchase product in lot sizes that minimize the sum of the material, ordering, and holding cost. If a manager were considering the holding cost alone, he or she would reduce the lot size and cycle inventory. Economies of scale in purchasing and ordering, however, motivate a manager to increase the lot size and cycle inventory. A manager must make the trade-off that minimizes the total cost when making the lot sizing decision. Ideally, cycle inventory decisions should be made considering the total cost across the entire supply chain. In practice, however, each stage often makes its cycle inventory decisions independently. As we discuss later in the chapter, this practice increases the level of cycle inventory as well as the total cost in the supply chain.
Any stage of the supply chain exploits economies of scale in its replenishment decisions in the following three typical situations:
1. A fixed cost is incurred each time an order is placed or produced.
2. The supplier offers price discounts based on the quantity purchased per lot.
3. The supplier offers short-term discounts or holds trade promotions.
Cycle inventory exists in a supply chain because different stages exploit economies of scale to lower total cost. The costs considered include material cost, fixed ordering cost, and holding cost. The supply chain operation phase operates on a weekly or daily time horizon and deals with decisions concerning individual customer orders.
Difficulty: Hard
1。讨论的作用,供应链中的库存周期。
答:主要作用是使库存周期不同阶段的供应链采购产品在许多大小,最小值的材料,排序,和持有成本。如果一个经理正在考虑持有成本,他或她会减少很多的大小和周期库存。经济规模采购和订购,然而,激励经理提高该地段的大小和周期库存。经理必须权衡最小的总成本时,使批量决策。理想情况下,周期库存的决定应考虑到在整个供应链总成本。在实践中,然而,每一个阶段往往使其周期库存决定独立。当我们讨论在本章后面,这种做法增加了水平循环库存以及在供应链总成本。
任何阶段的供应链,利用规模经济的补充决定在以下三种典型的情况:
1。固定成本是发生时间顺序放置或生产。
2。供应商提供价格折扣的基础上购买的数量每批。
3。供应商提供折扣或持有短期促销。
周期存货存在于供应链由于不同阶段开发规模经济降低总成本。考虑的成本包括材料费,固定订货成本,及持有成本。供应链运作阶段运行在一个每周或每天的时间范围和处理决定个别客户的订单。
难度:困难
2. Describe the impact of trade promotions on cycle inventory.
Answer: Manufacturers use trade promotions to offer a discounted price and a time period over which the discount is effective. The goal of trade promotions is to influence retailers to act in a way that helps the manufacturer achieve its objectives. A few of the key goals (from the manufacturer’s perspective) of a trade promotion are as follows:
1. Induce retailers to use price discounts, displays, or advertising to spur sales.
2. Shift inventory from the manufacturer to the retailer and the customer.
3. Defend a brand against competition.
In response to a trade promotion, the retailer has the following options:
1. Pass through some or all of the promotion to customers to spur sales.
2. Pass through very little of the promotion to customers but purchase in greater quantity during the promotion period to exploit the temporary reduction in price.
The first action lowers the price of the product for the end customer, leading to increased purchases and thus increased sales for the entire supply chain. The second action does not increase purchases by the customer but increases the amount of inventory held at the retailer. As a result, the cycle inventory and flow time within the supply chain increase.
Trade promotions lead to a significant increase in lot size and cycle inventory because of forward buying by the retailer. This generally results in reduced supply chain profits unless the trade promotion reduces demand fluctuations.
The retailer can justify the forward buying because it decreases his total cost. In contrast, the manufacturer can justify this action only if they have either inadvertently built up a lot of excess inventory or the forward buy allows the manufacturer to smooth demand by shifting it from peak to low-demand periods. In practice, manufacturers often build up inventory in anticipation of planned promotions. During the trade promotion, this inventory shifts to the retailer, primarily as a forward buy. If the forward buy during trade promotions is a significant fraction of total sales, manufacturers end up reducing the revenues they earn from sales because most of the product is sold at a discount. The increase in inventory and the decrease in revenues often leads to a reduction in manufacturer profits as a result of trade promotions. Total supply chain profits also decrease because of an increase in inventory.
Difficulty: Hard
2。描述的影响,贸易促销周期库存。
答:使用厂家的促销提供折扣价,一个时间周期,折扣是有效的。目标是影响零售商促销行为的方式,帮助制造商实现其目标。几个关键目标(从制造商的角度)的贸易推广如下:
1。促使零售商利用价格折扣,显示,或广告来促进销售。
2。从制造商转移存货的零售商和客户。
3。维护品牌的竞争。
响应促进贸易,零售商具有下列选项:
1。通过一些或所有促进客户促进销售。
2。通过非常小的推广客户购买更大的数量在推广期间利用暂时降低价格。
第一个作用降低了产品价格的最终客户,从而增加购买,从而增加销售的整个供应链。二行动不增加顾客购买的数量增加库存在零售。因此,库存和流动的时间周期内的供应链增长。
贸易促销导致显着增加很多的大小和周期库存因为提前购买的零售商。这通常导致减少供应链的利润,除非贸易推广减少需求波动。
零售商可以证明预购因为它降低他的总成本。与此相反,制造商可以证明这一行动,如果他们无意建立了很多多余的库存或远期购买允许制造商平稳需求转移其峰值低需求期。在实践中,企业往往建立存货预期计划的促销。在促进贸易,库存转移到零售商,主要是作为一个前锋买。如果远期购买贸易促销是一个相当一部分总销售,厂家最终降低他们赚取收入,多数产品打折出售。库存的增加和减少的收入往往导致减少制造商的利润由于贸易促销。整个供应链的利润也减少,因为增加库存。
难度:困难
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