Aggregating Multiple Products in a Single Order in a Supply Chain

As we have discussed earlier, a key to reducing lot size is the reduction of the fixed cost incurred per lot. One major source of fixed costs is transportation. In several companies, the array of prod­ucts sold is divided into families or groups, with each group managed independently by a sepa­rate product manager. This

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Economies of Scale to Exploit Quantity Discounts in a Supply Chain

We now consider pricing schedules that encourage buyers to purchase in large lots. There are many instances in business-to-business transactions in which the pricing schedule displays econ­omies of scale, with prices decreasing as lot size increases. A discount is lot-size based if the pricing schedule offers discounts based on the quantity ordered in a

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Short-Term Discounting: Trade Promotions in a Supply

Manufacturers use trade promotions to offer a discounted price to retailers and set a time period over which the discount is effective. For example, a manufacturer of canned soup may offer a price discount of 10 percent for the shipping period December 15 to January 25. For all pur­chases within the specified time horizon,

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Managing Multiechelon Cycle Inventory in a Supply Chain

A multiechelon supply chain has multiple stages and possibly many players at each stage. The lack of coordination in lot sizing decisions across the supply chain results in high costs and more cycle inventory than required. The goal in a multiechelon system is to decrease total costs by coordinating orders across the supply chain.

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Delivery Strategy at MoonChem

John Kresge, vice president of supply chain, was very con­cerned as he left the meeting at MoonChem, a manufac­turer of specialty chemicals. The year-end meeting evaluated financial performance and discussed the fact that the firm was achieving only two inventory turns a year. A more careful look revealed that more than half the inven­tory

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Pricing and Delivery at KAR Foods

NZ All Natural Ice Cream (NAN) began in 1984 as a small shop in Christchurch, which is the largest city in the South Island of New Zealand. With NAN specializ­ing in producing ice cream with all natural ingredients without any artificial colors or flavors, it is highly regarded by the public concerned about health,

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The Role of Safety Inventory in a Supply Chain

Safety inventory is inventory carried to satisfy demand that exceeds the amount forecast. Safety inventory is required because demand is uncertain, and a product shortage may result if actual demand exceeds the forecast demand. Consider, for example, Bloomingdale’s, a high-end department store. Bloomingdale’s sells purses purchased from Gucci, an Italian manufacturer. Given the high

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Factors Affecting the Level of Safety Inventory in a Supply Chain

The appropriate level of safety inventory is determined by the following two factors: The uncertainty of both demand and supply The desired level of product availability As the uncertainty of supply or demand grows, the required level of safety inventories increases. Demand for milk at a supermarket is quite predictable. As a result, supermarkets

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Determining the Appropriate Level of Safety Inventory in a Supply Chain

We now discuss the relationship between safety inventory and the CSL and fr. In this section, we restrict our attention to the continuous review policy. The periodic review policy is discussed in detail in Section 12.6. The continuous review policy consists of a lot size Q ordered when the inventory on hand declines to

Impact of Supply Uncertainty on Safety Inventory in a Supply Chain

In our discussion to this point, we have focused on situations with demand uncertainty in the form of a forecast error. In many practical situations, supply uncertainty also plays a significant role. The impact of supply uncertainty is well illustrated by the impact of the grounding of MSC Napoli on the south coast of

Impact of Aggregation on Safety Inventory in a Supply Chain

In practice, supply chains have varying degrees of inventory aggregation. For example, Barnes & Noble sells books from retail stores with inventory geographically distributed across the country. Amazon, in contrast, ships all its books from a few facilities. Seven-Eleven Japan has many small convenience stores densely distributed across Japan. In contrast, supermarkets tend to

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Impact of Replenishment Policies on Safety Inventory in a Supply Chain

In this section, we describe the evaluation of safety inventories for both continuous and periodic- review replenishment policies. We highlight the fact that periodic review policies require more safety inventory than continuous review policies for the same level of product availability. To simplify the discussion, we focus on the CSL as the measure of

Managing Safety Inventory in a Multiechelon Supply Chain

In our discussion so far, we have assumed that each stage of the supply chain has a well-defined demand and supply distribution that it uses to set its safety inventory levels. In practice, this is not true for multiechelon supply chains. Consider a simple multiechelon supply chain with a sup­plier feeding a retailer that

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The Role of IT in Inventory Management

Besides the basics of formalizing inventory replenishment procedures for thousands of SKUs, the two most significant contributions of IT systems can be improved inventory visibility and better coordination in the supply chain. An excellent example of the benefits of improved inventory visibility is Nordstrom, a department store chain in the United States. The company

Estimating and Managing Safety Inventory in Practice

Account for the fact that supply chain demand is lumpy. In practice, a manufacturer or distributor does not order one unit at a time but instead often orders in a large lot. Thus, demand observed by different stages of the supply chain tends to be lumpy. Lumpiness adds to the variability of demand. For

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Managing Inventories at ALKO Inc.

ALKO began in 1943 in a garage workshop set up by John Williams at his Cleveland home. John had always enjoyed tinkering, and in February 1948 he obtained a patent for one of his designs for lighting fixtures. He decided to produce it in his workshop and tried market­ing it in the Cleveland area.

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Should Packing Be Postponed to the DC?

Foxcompany (Fox) Co. Ltd. was founded in 1974 in Taiwan as a manufacturer of electrical components for computers. With strong research and development efforts, by 2011, it had accumulated more than 25,000 patents granted worldwide. Fox is now one of the world’s 500 biggest companies, according to Fortune magazine. Its biggest production operation is

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The Importance of the Level of Product Availability in a Supply Chain

The level of product availability is measured using the cycle service level or the fill rate, which are metrics for the amount of customer demand satisfied from available inventory. The level of product availability, also referred to as the customer service level, is one of the primary mea­sures of a supply chain’s responsiveness. A

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Factors Affecting Optimal Level of Product Availability in a Supply Chain

To understand the factors that influence the optimal level of product availability, consider L. L. Bean, a large mail-order company that sells apparel. One of the products L. L. Bean sells is ski jackets, for which the selling season is from November to February. The buyer at L. L. Bean cur­rently purchases the entire

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Managerial Levers to Improve Supply Chain Profitability

Having identified the factors that influence the optimal level of product availability, we now focus on actions a manager can take to improve supply chain profitability. We have shown in Section 13.2 that the costs of overstocking and understocking have a direct impact on both the optimal cycle service level and profitability. Two obvious

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