BU435 Chapter Notes - Chapter 11: Carrying Cost, Fixed Cost, European Cooperation In Science And Technology
Document Summary
Ch. 11: managing economies of scale in a supply chain. Key point: cycle inventory exists in sc b/c different stages exploit. Inventory holding cost: cost of capital, obsolescence cost, handling cost, occupancy cost, miscellaneous costs, theft, security, damage, tax, insurance. Estimating cycle inventory related costs in practice: ordering cost. Economies of scale to exploit fixed costs: basic assumptions. Demand is steady at d units per unit time. Replenishment lead time is fixed: minimize. Key point: total ordering & holding costs are relatively stable around. Firm is often better served by ordering a convenient lot size. Lot size & ordering cost key point: to reduce the optimal lot size by a factor of k, the fixed order cost s must be reduced by a factor of k2. Production lot sizing: the entire lot does not arrive at the same time, production occurs at a specified rate p. Inventory builds up at a rate of p d.
