Chopra & Meindl

1. Consider a supermarket deciding on the coat of its substitution order from Proctor & Gamble. What equals should it mesh into account when qualification this decision? The main price categories for the supermarkets list policy ar material be, ordering costs, and holding costs. Material cost is the money nonrecreational to Proctor and Gamble for the goods themselves. Ordering costs, likewise called procurement costs, argon incurred by requesting the goods from the supplier and are stubborn in the wizard that they do non vary with the size of the order.Examples of such fixed costs are the fag out required to place the order, handle the resultant account recreate and the conveyance of title fee to air the order. The holding cost is the cost to carry one unit in history for a specified plosive speech sound of time, usually one year. This cost is variable and includes the cost of capital and all of the costs associated with physically storing inventory shrinka ge, spoilage or obsolescence, insurance, the cost of capital, the cost of the wareho expenditure space, etc. 2. debate how various costs for the supermarket change as it lowers the diff physical exercise size consistent from Proctor & Gamble. As the located up reactor size ordered from the supplier decreases, the holding cost (variable with respect to dowry size) decreases. As the lot size decreases, the ordering cost remains the same, but the one-year ordering cost will rise since the total number of orders each year must outgrowth. As the lot size decreases, the cost of the materials will drop on a per-order basis but will stay the same on an annual basis since total annual expect hasnt changed.The ejection to this occurs if the supplier has a price break for an order size to a higher place a certain threshold in this case the cost of the goods expertness increase if the reduced order size is non sufficient to introduction a substantial per unit discount. 3. As posit at the supermarket train grows, how would you expect the speech rhythm inventory measured in days of inventory to change? Explain. As the demand at the supermarket image grows, we would expect the cycle inventory as measured in days of inventory to also increase, although the increase in cycle inventory is wholly 40% of the increase in demand.This is because the relationship between the optimum lot size Q* and the annual demand D is pic. Since D is under the radical, its doubling to 2D does not translate to a jump from a Q* to a 2Q* order it translates to a jump from a Q* to a 1. 4Q* order. 4. The manager at the supermarket wants to decrease the lot size without increasing the costs he incurs. What serves can he take to hit his objective? One action would be to simply decrease the lot size and let the robust nature of the EOQ model work its magic.The total cost curve on either side of the optimal order quantity, the Q*, is relatively flat, so movements in either direct ion brace little impact on total annual procurement and carrying costs. If great cuts in lot size are desired, the manager can amount of money multiple products in a single order. Recall that the EOQ model is found on a one-product-at-a-time assumption if multiple products are aggregated, then the fixed procurement cost is spread over all of the items and dramatic lot size reductions are possible.If the same products are being ordered by another supermarket in the same range of mountains (or at least by stores that are willing to cooperate) the combined orders can be delivered by a single truck making multiple stops, thereby reducing transportation expense. Other techniques that should be deployed when aggregating across product lines include advanced cargo ships notices and RFID tags that will make inventory tracking and warehouse management simpler. 5. When are quantity discounts justified in a bring out chain? metre discounts are justified in a write out chain as long as they are the fruits of a coordinated write out chain and maximize total supply chain profits. For good products for which price is set by the market, makers with large fixed costs per lot can use lot size- base quantity discounts to maximize total supply chain profits. 6. What is the conflict between lot size-based and volume-based quantity discounts? Lot size discounts are based on the quantity procured per lot, not the rate of secure.Lot size-based discounts tend to elevator cycle inventory in the supply chain by load-bearing(a) retailers to increase the size of each lot. Lot size-based discounts make sense exactly when the manufacturer incurs a very high fixed cost per order. For commodity products for which price is set by the market, manufacturers with large fixed costs per lot can use lot size-based quantity discounts to maximize total supply chain profits. Volume discounts are based on the rate of purchase or volume purchased per specified time period. Volume-based di scounts are compatible with shrimpy lots that reduce the cycle inventory.If the manufacturer does not incur a very high fixed cost per order, it is better for the supply chain to have volume-based discounts. For products for which a quick has market power, volume-based discounts can be utilise to achieve coordination in the supply chain and maximize supply chain profits. 7. Why do manufacturers such as Kraft and Sara lee say trade promotions? What impact do trade promotions have on the supply chain? How should trade promotions be structured to maximize their impact piece minimizing the additional cost they impose on the supply chain?Manufacturers use trade promotions to offer a discounted price and a time period over which the discount is effective. The goal of manufacturers such as Kraft and Sara Lee is to influence retailers to act in a way that helps the manufacturer achieve its objectives. These objectives whitethorn include increased sales, a shifting of inventory from m anufacturer to retailer, and defense against the competition. Trade promotions may cause a retailer to proceed through some or all of the promotion to customers to spur sales, which increases sales for the entire supply chain.What happens more frequently in practice is that retailers may choose to pass through very little of the promotion to customers, purchase in greater quantities, and hold this cheaper inventory in greater quantities. This action increases both cycle inventory and flow times within the supply chain. Trade promotions should be structured such that a retailers optimal response benefits the entire supply chain, i. e. , retailers limit their forward acquire and pass along more of the discount to end customers.If the manufacturer has put in excessive inventory, then a trade promotion may will sufficient incentive to the buyer to forward buy, thus drawing inventories stilt to an appropriate level. The manufacturer may be able to smooth demand by shifting it to a period of anticipated low demand with a trade promotion. Research has shown that trade promotions by the manufacturer are effective for products with high deal elasticity that ensures high pass-through (passing the discount on to the consumer) and high holding costs that ensure low forward buying, paper goods being the poster child for this combination.Trade promotions are also more effective with strong brands relative to weak brands and may make sense as a competitive response. 8. Why is it appropriate to include only the incremental cost when estimating the holding and order cost for a firm? The cycle inventory models discussed in the chapter are robust thus incremental (variable) costs per lot size are more important than costs that are fixed with respect to lot size. The labor component of procurement or setup costs may be salaried therefore changes in lot size do not impact this component.