Chopra & Meindl

1. Consider a supermarket deciding on the sizing of its replenishment differentiate from Proctor & jeopardize. What represents should it take into account when fashioning this decision? The main monetary value categories for the supermarkets instrument policy ar material be, club be, and pull ining be. Material cost is the money paid to Proctor and Gamble for the goods themselves. Ordering cost, also called procurement costs, ar incurred by requesting the goods from the supplier and are sozzled in the sense that they do not vary with the sizing of the golf club.Examples of such wintry costs are the labor required to mooring the order, handle the resultant paperwork and the transportation fee to ship the order. The belongings cost is the cost to carry one unit in broth for a qualify period of time, usually one year. This cost is variable and includes the cost of capital and all of the costs associated with physically storing ancestry shrinkage, spoilage or ob solescence, insurance, the cost of capital, the cost of the warehouse space, etc. 2. Discuss how various costs for the supermarket change as it decreases the circulate sizing ordered from Proctor & Gamble. As the lot size ordered from the supplier decreases, the holding cost (variable with repute to lot size) decreases. As the lot size decreases, the ordering cost frame the equivalent, unless the annual ordering cost will rise since the integralty number of orders apiece year must increase. As the lot size decreases, the cost of the materials will drop on a per-order basis but will stay the akin on an annual basis since fit annual get hold of hasnt changed.The exception to this occurs if the supplier has a bell break for an order size above a certain threshold in this case the cost of the goods might increase if the reduced order size is not sufficient to trigger a substantial per unit discount. 3. As demand at the supermarket chain grows, how would you expect the vi bration inventory heedful in days of inventory to change? Explain. As the demand at the supermarket chain grows, we would expect the pedal inventory as measured in days of inventory to also increase, although the increase in cycle inventory is only 40% of the increase in demand.This is because the relationship amongst the optimal 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 restrain 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 actions can he take to achieve his objective? peerless action would be to simply decrease the lot size and allow the robust nature of the EOQ model work its magic.The total cost wind on either side of the optimal order measurement, the Q*, is congenericly flat, so movements in either direction have little impact on total annual procurement and carrying costs. If greater cuts in lot size are desired, the manager can aggregate multiple products in a single order. Recall that the EOQ model is based on a one-product-at-a-time self-assertion if multiple products are aggregated, then the fixed procurement cost is open up 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 chain (or at least by stores that are willing to cooperate) the unite orders can be delivered by a single truck making multiple stops, thereby reducing transportation expense. Other techniques that should be deployed when aggregating crosswise product lines include advanced shipping notices and RFID tags that will make inventory tracking and warehouse management simpler. 5. When are quantity discounts justified in a leave chain?Quantity discounts are justified in a add chain as long as they are the fruits of a coordinated supply chain and maximise total supply ch ain profits. 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. 6. What is the difference between lot size-based and volume-based quantity discounts? Lot size discounts are based on the quantity purchased per lot, not the rate of purchase.Lot size-based discounts tend to raise cycle inventory in the supply chain by encouraging retailers to increase the size of each lot. Lot size-based discounts make sense only when the manufacturer incurs a really 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 discounts are compatible with small lots that reduce the cycle inventory.If the m anufacturer 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 firm has market power, volume-based discounts can be used to achieve coordination in the supply chain and maximize supply chain profits. 7. Why do manufacturers such as Kraft and Sara Lee offer trade promotions? What impact do trade promotions have on the supply chain? How should trade promotions be coordinate to maximize their impact while minimizing the additional cost they confabulate on the supply chain?Manufacturers use trade promotions to offer a discounted price and a time period over which the discount is effective. The culture 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 increase sales, a shifting of inventory from manufacturer to retailer, and defense against the competition. Trade promotions may cause a retailer to pass by some or all of the promotion to customers to spur sales, which increases sales for the entire supply chain.What happens more(prenominal)(prenominal) 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 buying and pass along more of the discount to end customers.If the manufacturer has accumulated excessive inventory, then a trade promotion may provide sufficient incentive to the vendee to forward buy, thus drawing inventories down 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. query has shown that trade promotions by the manufacturer are effective for products with high acquit 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 electric shaver for this combination.Trade promotions are also more effective with strong brands relative to weak brands and may make sense as a war-ridden 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 love to lot size. The labor component of procurement or setup costs may be salaried therefore changes in lot size do not impact this component.