Chapter 11 - Managing Economies of Scale in a Supply Chain Cycle Inventory

Chapter 11 and 12
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Chapter 11 - Managing Economies of Scale in a Supply Chain Cycle Inventory
As an inventory quality manager at a major big box retailer, you have been tasked to reduce the lot size of products from a major supplier: a) Discuss which costs are expected to change. b) Your boss has tasked you to achieve the objective of lot size reduction without increasing cost. How will you achieve that?
As an inventory quality manager at a famous box retailer, my responsibility is to reduce the lot size of products from one of the major suppliers. Firstly, I would talk about the costs that are expected to change. Secondly, I would share my ideas on how to achieve the objective of lot size reduction without any need of increasing the cost.
From this chapter, I have learned that the costs that are expected to change are the annual holding costs, annual ordering costs, and material costs (Chopra & Meindl, 2016). The material costs are the prices of the products or goods that customers are buying. When the lot size decreases, lesser materials will be required; this means a decrease in material costs can be noticed. On the other hand, the annual holding costs are the prices that hold one unit in inventory for a specific period of time. We can justify it by multiplying the holding cost per unit by the lot size. Next, the annual ordering costs are acquired from the supplier via orders of the products or goods. These can also be regarded as procurement costs.
In order to achieve the objective of the lot size reduction without any need of increasing the costs, I would like to pay attention to reducing the total number of orders that are fixed. Another idea is to reduce transportation costs. When the order numbers are decreased, the lot size will also decrease and this will reduce the transportation costs to an extent. Furthermore, there is a strong need to recycle inventory, as this will let the retailer take maximum advantage of the promotional period and price reduction. Next, I may make appropriate use of the economic order quantity equation which is used to reduce the ordering and holding costs in order to achieve the desired results. The formula is as follows:
EOQ = 2×D×SH×C
Here D is the annual demand of quantity per unit time, C is the cost per unit, H is the fraction of the product cost which is called the holding cost per unit, and S is the ordering cost of the good or product (Chopra & Meindl, 2016).
Discuss the impact of quantity discounts and trade promotions on lot size.
It should be noticed that trade promotions and quantity discounts can leave long-lasting impacts on the lot size. First of all, if the quantity discount is higher, then we will have to adjust the lot size accordingly. Similarly, if the quantity discount is at a low level, then the lot size will also be decreased. Its main reason is that the marketer will be able to sell more and more products at a time. This will reduce maintenance costs and will take lesser time to give more and more profits. Secondly, if the trade promotions are done on a regular basis, then the marketer will be able to get more and more customers. In such a situation, they can sell any lot size at minim...