Scribd Logo
Upload

Welcome to Scribd!

  • 74 views

    Economics of Scale To Exploit Fixed Cost:: Role of Cycle Inventory in SC & Lot Sizing For Single Product

    Uploaded by

    DEEPAK DEEPAK
    This document discusses cycle inventory and lot sizing for a single product. It defines cycle inventory as the average inventory held in a supply chain due to producing or purchasing lots that are larger than customer demand. Lot size refers to the quantity produced or purchased at a time. The primary role of cycle inventory is to allow different supply chain stages to purchase in lot sizes that minimize costs like material, ordering, and holding costs. Economics of scale can be exploited when fixed costs are incurred for each order placed or produced. The optimal lot size calculation, known as economic order quantity, aims to minimize total annual costs including ordering, holding, and material costs.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd

    Economics of Scale To Exploit Fixed Cost:: Role of Cycle Inventory in SC & Lot Sizing For Single Product

    Uploaded by

    DEEPAK DEEPAK
    74 views19 pages
    This document discusses cycle inventory and lot sizing for a single product. It defines cycle inventory as the average inventory held in a supply chain due to producing or purchasing lots that are larger than customer demand. Lot size refers to the quantity produced or purchased at a time. The primary role of cycle inventory is to allow different supply chain stages to purchase in lot sizes that minimize costs like material, ordering, and holding costs. Economics of scale can be exploited when fixed costs are incurred for each order placed or produced. The optimal lot size calculation, known as economic order quantity, aims to minimize total annual costs including ordering, holding, and material costs.

    Original Description:

    Economies of scale in a supply chain cycle inventory

    Original Title

    214219005_Deepak

    Copyright

    © © All Rights Reserved

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses cycle inventory and lot sizing for a single product. It defines cycle inventory as the average inventory held in a supply chain due to producing or purchasing lots that are larger than customer demand. Lot size refers to the quantity produced or purchased at a time. The primary role of cycle inventory is to allow different supply chain stages to purchase in lot sizes that minimize costs like material, ordering, and holding costs. Economics of scale can be exploited when fixed costs are incurred for each order placed or produced. The optimal lot size calculation, known as economic order quantity, aims to minimize total annual costs including ordering, holding, and material costs.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    74 views19 pages

    Economics of Scale To Exploit Fixed Cost:: Role of Cycle Inventory in SC & Lot Sizing For Single Product

    Uploaded by

    DEEPAK DEEPAK
    This document discusses cycle inventory and lot sizing for a single product. It defines cycle inventory as the average inventory held in a supply chain due to producing or purchasing lots that are larger than customer demand. Lot size refers to the quantity produced or purchased at a time. The primary role of cycle inventory is to allow different supply chain stages to purchase in lot sizes that minimize costs like material, ordering, and holding costs. Economics of scale can be exploited when fixed costs are incurred for each order placed or produced. The optimal lot size calculation, known as economic order quantity, aims to minimize total annual costs including ordering, holding, and material costs.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 19

    Economics of scale

    to Exploit Fixed Cost:


    Role of Cycle inventory in SC &
    Lot Sizing for Single Product

    Presented by
    Deepak
    214219005
    Role of Cycle inventory in SC
    • Cycle Inventory is the average inventory in a
    supply chain due to either production or
    purchases in lot sizes that are larger than those
    demanded by the customer.
    • A lot size or batch size is the quantity that a stage
    of a supply chain either produces or purchases at
    a time.
    Role of Cycle inventory in SC
    • Inventory Profile:
    Role of Cycle inventory in SC

    • Average flow time


    resulting from Cycle
    Inventory
    Role of Cycle inventory in SC
    • Benefits Lower Cycle Inventory:
    • Shorter average flow time
    • Decreases a firm’s working capital requirement
    • Decreases Inventory holding cast
    • Cycle inventory is held to
    • Take advantage of economies of scale &
    • Reduce cost within the supply chain
    • The average price paid per unit purchased is a key
    cost in the lot-sizing decision.
    • Price paid per unit = material cost = C
    • EOS - Increasing lot size decreases material cost
    Role of Cycle inventory in SC
    • The fixed ordering cost includes all costs that do
    not vary with the size of the order but are
    incurred each time an order is placed.
    • Fixed ordering cost per lot = S
    • Ordering cost displays economies of scale -Increasing lot
    size decreases fixed ordering cost per unit purchased.
    • Holding cost is the cost of carrying one unit in
    inventory for a specified period of time.
    • Holding Cost = hC
    • The holding cost increases with an increase in lot size and
    cycle inventory.
    Role of Cycle inventory in SC
    • The Primary role of cycle inventory is to allow
    different stages in a supply chain to purchase product
    in lot sizes that minimize the sum of the material,
    ordering and holding costs.
    • Economics of scale exploited in three typical situations
    n A fixed cost is incurred each time an order is placed or
    produced.
    n The Supplier offers price discounts based on the quantity
    purchased per lot.
    n The Supplier offers short-term price discounts or hold trade
    promotions.
    Economics of scale to Exploit Fixed costs

    • In this section we focus on the situation in which


    a fixed cost associated with placing, receiving,
    and transporting an order is incurred each time
    the order is placed.
    • A purchasing manager wants to minimize the
    total cost of satisfying demand and must
    therefore make the appropriate cost trade-offs
    when making the lot sizing decision.
    Economics of scale to Exploit Fixed costs

    • Optimal Lot Sizing for a Single


    Product(EOQ):
    • D = Annual demand of the product
    • S = Fixed cost incurred per order
    • C = Cost per unit of product
    • h = Holding cost per year as a fraction of product
    cost
    Economics of scale to Exploit Fixed costs

    • Basic Assumptions:
    1. Demand is steady at D units per unit time.
    2. No Shortages are allowed – that is, all demand
    must be supplied from stock.
    3. Replenishment lead time is fixed (initially
    assumed to be zero)
    Economics of scale to Exploit Fixed costs

    Main Objective to Minimize:


    1. Annual Ordering Cost: is the cost incurred in
    ordering inventory from suppliers excluding the cost
    of purchase such as delivery costs and order
    processing costs.
    2. Annual Holding Cost: also known as carrying cost,
    is the total cost of holding inventory such as
    warehousing cost.
    3. Annual Material Cost: Average price paid per unit
    purchased is a key cost in the lot-sizing decision.
    Economics of scale to Exploit Fixed costs
    Economics of scale to Exploit Fixed costs

    • Effect of Lot Size on Costs:


    Economics of scale to Exploit Fixed costs
    Economics of scale to Exploit Fixed costs

    EXAMPLE : Economic Order Quantity


    Demand for the Deskpro computer at Best Buy is 1,000 units per month.
    Best Buy incurs a fixed order placement , transportation , and receiving
    cost of $4,000 each time an order is placed. Each Computer costs Best
    Buy $ 500 and the retailer has an annual holding cost of 20 percent.
    Evaluate the number of computers that the store manager should order
    in each replenishment lot.
    Analysis:
    In this case, the store manager has the following inputs:
    Annual Demand , D = 1,000*12 = 12,000 units
    Order cost per lot, S = $4,000
    Unit cost per computer, C = $ 500
    Holding cost per year as a fraction of unit cost, h = 0.2
    Economics of scale to Exploit Fixed costs
    Economics of scale to Exploit Fixed costs
    Economics of scale to Exploit Fixed costs
    THA
    NK

    You might also like