Part 2 book “Supply chain manageme” has contents: Coordination in a supply chain, managing economies of scale in a supply chain - cycle inventory, managing uncertainty in a supply chain - safety inventory, determining the optimal level of product availability, and other contents. | C H A P T E R 11 Managing Economies of Scale in a Supply Chain Cycle Inventory Learning Objectives After reading this chapter, you will be able to 1. Balance the appropriate costs to choose the 4. Understand the impact of trade promotions optimal lot size and cycle inventory in a on lot size and cycle inventory. supply chain. 5. Identify managerial levers that reduce lot 2. Understand the impact of quantity size and cycle inventory in a supply chain discounts on lot size and cycle inventory. without increasing cost. 3. Devise appropriate discounting schemes for a supply chain. C ycle inventory exists because producing or purchasing in large lots allows a stage of the supply chain to exploit economies of scale and thus lower cost. The presence of fixed costs associated with ordering and transportation, quantity discounts in product pricing, and short-term discounts or promotions encourages different stages of a supply chain to exploit economies of scale and order in large lots. In this chapter, we study how each of these factors affects the lot size and cycle inventories within a supply chain. Our goal is to identify managerial levers that reduce cycle inventory in a supply chain without raising cost. The Role of Cycle Inventory in a Supply Chain A lot or batch size is the quantity that a stage of a supply chain either produces or purchases at a time. Consider, for example, a computer store that sells an average of four printers a day. The store manager, however, orders 80 printers from the manufacturer each time he places an order. The lot or batch size in this case is 80 printers. Given daily sales of four printers, it takes an average of 20 days before the store sells the entire lot and purchases a replenishment lot. The computer store holds an inventory of printers because the manager purchases a lot size larger than the store’s daily sales. Cycle inventory is the average inventory in a supply chain due to either production or .
