Cycle inventory PDF

Preview

Summary

Cycle inventory...

Description

Cycle inventory ||

d = discount

1. Bullwhip effect – small variations downstream the supply chain may lead to huge problems upstream the supply chain 2. Key points

Cycle inventory ||| 1. Economies of scale to exploit quantity discounts

a. Lot size-based discount – based on quantity ordered in a single lot [tend to raise the inventory cycle in the supply chain] b. Volume-based discount – based on total quantity purchased over a given period [good discount scheme unless manufacturer has a large fixed cost associated with each lot, the lot size-based is better] 2. Discounting schemes a. All-unit quantity discounts – price is 5 but if you buy over let’s say 1000 units, you pay 4.80 for all b. Marginal unit quantity discount (multi-block tariffs) – discount only for quantity exceeding threshold – threshold is 1000, we buy 1200 => first 1000 products are 5 euros, last 200 are 4.80 3. Quantity discounts – 2 basic questions a. What is the optimal purchasing decision for a buyer seeking to maximize profits? i. How does this decision affect the supply chain in terms of lot sizes, cycle inventories, and flow times? (buyer perspective) b. Under what conditions should a supplier offer quantity discounts? i. What are appropriate pricing schedules that a supplier seeking to maximize profits should offer? (supplier perspective) 4. All-unit lot size-based discount – buyer perspective a. Price Ci decreased with order size b. Break points Qi– thresholds c. For all units procured



How to find the optimum (optimal) lot size under lot size-based, all-unit discounting? o Consider feasible EOQs for each price level Ci, consider break points o Compute the total annual costs for each option

o

Select the option with minimum total annual costs (everything is a “+” in the formula)...