Question 1: The manager at the supermarket wants to decrease the lot size without increasing the...

Question 1:

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?
When are quantity discounts justified in a supply chain?

Question 2:

Explain how a reduction in lead time can help a supply chain reduce safety inventory without hurting product availability.
Describe the two types of ordering policies and the impact that each of them has on safety inventory.

Question 3:

Consider two products with the same cost but different margins. Which product should have a higher level of product availability? Why? Explain how
How can postponement of product differentiation be used to improve supply chain profitability?

Expert Solution

One step is simply to reduce the size of the lot and use Economic Order Quantity which will be beneficial here. There is a relatively low overall cost curve on either side of the optimal order amount, the EOQ *, so movements in either direction have little impact on the overall annual procurement and carrying costs.

The manager can add multiple products in one single order if more lots are wanted. Remember, the EOQ model relies on a one-time assumption of a one-product; if multiple products are added up, the fixed procurement costs may be applied to all the items and the lot sized may be reduced dramatically. If another supermarket in the same chain orders the same products (or at least by stores willing to cooperate), a single truck can deliver combined orders, making several stops, thereby reducing transport costs.

Advanced shipping notifications and RFID tags that facilitate inventory tracking and warehouse administration are also techniques that must be used to aggregate across products.

Quantity discounts in the supply chain are justified provided that they are produced by a coordinated supply chain and maximize the full profit of the supply chain. Products with large fixed costs per lot are allowed to use lot-size quantity discounts to maximize overall supply chain profit for the commodity products for which the market prices are set.

keosha answered 1 year ago

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