3Session 3 Cycle inventory - Supply Chain Analytics Managing Economies of Scale in the Supply Chain Cycle Inventory Outline Role of Cycle Inventory in a

3Session 3 Cycle inventory - Supply Chain Analytics...

This preview shows page 1 - 9 out of 42 pages.

. Managing Economies of Scale in the Supply Chain: Cycle Inventory Supply Chain Analytics
Dr. Srikanta Routroy. 2 Outline Role of Cycle Inventory in a Supply Chain. Economies of Scale to Exploit Fixed Costs. Economies of Scale to Exploit Quantity Discounts. Short-Term Discounting: Trade Promotions. Managing Multi-Echelon Cycle Inventory. Estimating Cycle Inventory-Related Costs in Practice.
Dr. Srikanta Routroy. 3 Role of Cycle Inventory in a Supply Chain Lot, or batch size: quantity that a supply chain stage either produces or orders at a given time. Cycle inventory: average inventory that builds up in the supply chain because a supply chain stage either produces or purchases in lots that are larger than those demanded by the customer Q = lot or batch size of an order d = demand per unit time Inventory profile: plot of the inventory level over time. Cycle inventory = Q/2 (depends directly on lot size) Average flow time = Avg inventory / Avg flow rate Average flow time from cycle inventory = Q/(2d)
4
Dr. Srikanta Routroy. 5 Role of Cycle Inventory in a Supply Chain Cycle inventory is held primarily to take advantage of economies of scale in the supply chain. Supply chain costs influenced by lot size: Material cost = C Fixed ordering cost = S Holding cost = H = hC (h = cost of holding $1 in inventory for one year) Primary role of cycle inventory is to allow different stages to purchase product in lot sizes that minimize the sum of material, ordering, and holding costs. Ideally, cycle inventory decisions should consider costs across the entire supply chain, but in practice, each stage generally makes its own supply chain decisions – increases total cycle inventory and total costs in the supply chain.
6
Dr. Srikanta Routroy. 7 Fixed Costs: Optimal Lot Size and Reorder Interval (EOQ) D: Annual demand S: Setup or Order Cost C: Cost per unit h: Holding cost per year as a fraction of product cost H: Holding cost per unit per year Q: Lot Size T: Reorder interval Material cost is constant and therefore is not considered in this model DH S n H DS Q hC H 2 * 2 *
8 Key Points from EOQ Model

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture