Managing Economies Of Scale In The Supply Chain: Cycle Inventory

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Questions Bank

Understanding the Supply Chain
Supply Chain Performance: Achieving Strategic Fit and Scope
Supply Chain Drivers and Metrics
Designing Distribution Networks and Applications to e-Business
Network Design in the Supply Chain
Designing Global Supply Chain Networks
Demand Forecasting in a Supply Chain
Aggregate Planning in a Supply Chain
Sales and Operations Planning: Planning Supply and Demand in a Supply Chain
Coordination in a Supply Chain
Managing Economies of Scale in the Supply Chain: Cycle Inventory
Managing Uncertainty in a Supply Chain: Safety Inventory
Determining the Optimal Level of Product Availability
Transportation in a Supply Chain
Sourcing Decisions in a Supply Chain
Pricing and Revenue Management in a Supply Chain
Sustainability and the Supply Chain

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Question 1

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Cycle inventory exists because producing or purchasing in large lots allows a stage of the supply chain to exploit economies of scale and increase cost.

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Question 2

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Cycle inventory is the physical inventory in the supply chain due to either production or purchases demanded by the customer.

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Question 3

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Lot sizes and cycle inventory do not affect the flow time of material within the supply chain.

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Question 4

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Average flow time resulting from cycle inventory = Cycle Inventory/Demand = Q/2D.

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Question 5

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Cycle inventory is primarily held to take advantage of economies of scale and reduce profit within the supply chain.

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Question 6

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Cycle inventory exists in a supply chain because different stages exploit economies of scale to lower total cost.

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Question 7

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The costs considered in lot sizing decisions include material cost, fixed ordering cost, and manufacturing cost.

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Question 8

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A firm is often better served by ordering a convenient lot size close to the economic order quantity rather than the precise EOQ.

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Question 9

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To reduce the optimal lot size by a factor of k, the fixed order cost S must be reduced by a factor of k.

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Question 10

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Aggregating across products, retailers, or suppliers in a single order allows for a reduction in lot size for individual products because fixed ordering and transportation costs are now spread across multiple products, retailers, or suppliers.

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Question 11

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A key to reducing cycle inventory is the reduction of lot size.

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Question 12

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Reduction of fixed cost may be achieved by aggregating lots across multiple products, customers, or suppliers.

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Question 13

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A discount is volume-based if the pricing schedule offers discounts based on the quantity ordered in a single lot.

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Question 14

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Pricing schedules with all unit quantity discounts encourage retailers to increase the size of their lots, which reduces the average inventory and flow time in a supply chain.

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Question 15

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Marginal unit quantity discounts have also been referred to as multi-block tariffs.

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Question 16

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For commodity products where price is set by the market, manufacturers can use lot size based quantity discounts to achieve coordination in the supply chain and decrease supply chain cost.

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Question 17

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The supply chain profit is higher if each stage of the supply chain independently makes its pricing decisions with the objective of maximizing its own profit.

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Question 18

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For products where the firm has market power, two-part tariffs can be used to achieve coordination in the supply chain and maximize supply chain profits.

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Question 19

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Price discrimination is the practice where a firm charges differential prices to maximize profits.

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Question 20

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Although a forward buy is often the retailer's appropriate response and increases their own profits, it usually increases demand variability with a resulting increase in inventory and flow times within the supply chain.

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