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Chopra Scm5 Ch11
Chopra Scm5 Ch11
Managing
Economies of Scale
in a Supply Chain:
Cycle Inventory
PowerPoint presentation to accompany
Chopra and Meindl Supply Chain Management, 5e
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.
11-1
1-1
Learning Objectives
Figure 11-1
lot size Q
Cycle inventory = =
2 2
average inventory
Average flow time =
average flow rate
• Ordering Cost
– Buyer time
– Transportation costs
– Receiving costs
– Other costs
• Minimize
– Annual material cost
– Annual ordering cost
– Annual holding cost
Figure 11-2
2 ´ 12,000 ´ 4,000
Optimal order size =Q* = =980
0.2 ´ 500
Q * 980
Cycle inventory = = =490
2 2
D
Number of orders per year = =12.24
Q*
D æQ * ö
Annual ordering and holding cost = S + ç ÷hC =97,980
Q* è2 ø
Q* 490
Average flow time = = =0.041=0.49 month
2D 12,000
D æQ * ö
Annual inventory-related costs = S + ç ÷hC =250,000
Q* è 2 ø
• Three approaches
1. Each product manager orders his or her
model independently
2. The product managers jointly order every
product in each lot
3. Product managers order jointly but not
every order contains every product; that is,
each lot contains a selected subset of the
products
Demand
DL = 12,000/yr, DM = 1,200/yr, DH = 120/yr
Common order cost
S = $4,000
Product-specific order cost
sL = $1,000, sM = $1,000, sH = $1,000
Holding cost
h = 0.2
Unit cost
CL = $500, CM = $500, CH = $500
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. 11-27
Multiple Products Ordered and Delivered
Independently
Table 11-1
• Total annual cost = $155,140
DL hC L DM hC M DH hC H
Annual holding cost = + +
2n 2n 2n
DL hC L DM hC M DH hC H
Total annual cost = + + +S *n
2n 2n 2n
n* =
DL hC L + DM hC M + DH hC H
n* =
å i=1
Di hCi
2S * 2S *
Annual ordering
and holding cost = $61,512 + $6,151 + $615 + $68,250
= $136,528
Table 11-2
n* =
å i=1
D1hC1
=
4 ´ 10,000 ´ 0.2 ´ 50
=14.91
2S * 2 ´ 900
900
Annual order cost =14.91´ =$3,354
4
n=
å i=1
hCi mi D
2 S +å
( )
l
s / mi
i=1 i
• Applying Step 1
hC L DL
nL = =11.0
2(S + sL )
Thus
n =11.0
hC M DM
nM = =3.5
2(S + sM )
hC H DH
nL = =1.1
2(S + sH )
• Applying Step 2
hC M DM hC H DH
nM = =7.7 and nH = =2.4
2sM 2sH
• Applying Step 3
é ù é ù é ù é ù
n 11.0 n 11.0
mM =ê ú=ê ú=2 and mH =ê ú=ê ú=5
ên ú ê 7.7 ú ên ú ê 2.4 ú
ê Mú ê Hú
Table 11-3
• Applying Step 4
n =11.47
• Applying Step 5
nL =11.47 / yr nM =11.47 / 2 =5.74 / yr
nH =11.47 / 5 =2.29 / yr
nS + nL sL + nM sM + nH sH =$65,383.5 $130,767
Figure 11-3
2DS
Qi =
hCi
• Cutoff price
1æ DS h ö
C* = çDCr + + qrCr – 2hDSCr ÷
Dè qr 2 ø
q0 = 0, q1 = 5,000, q2 = 10,000
C0 = $3.00, C1 = $2.96, C2 = $2.92
D = 120,000/year, S = $100/lot, h = 0.2
Step 1
2DS 2DS 2DS
Q0 = =6,324; Q1 = =6,367; Q2 = =6,410
hC0 hC1 hC2
Step 2
Ignore i = 0 because Q0 = 6,324 > q1 = 5,000
For i = 1, 2
Q1* =Q1 =6,367; Q2* =q2 =10,000
Step 3
æ D ö æQ * ö
TC1 =çç * ÷
÷S + ç
ç
1
÷
÷hC1 + DC1 =$358,969; TC2 =$354,520
èQ1 ø è 2 ø
Figure 11-4
æD ö
Annual order cost =ç ÷S
èQ ø
Annual holding cost =éëVi + (Q – qi )C i ùûh / 2
Dé
Annual materials cost = ëVi + (Q – qi )Ci ùû
Q
æD ö
Total annual cost =ç ÷S + é Vi + (Q – qi )C i ù
ë ûh/2
èQ ø
Dé
+ ëVi + (Q – qi )Ci ùû
Q
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. 11-55
Marginal Unit Quantity Discounts
æD ö
TCi =ç ÷S + éV + (Q * – q )C ùh / 2 + D éV + (Q * – q )C ù
çQ * ÷ ë i i i iû *ë i i i iû
è iø Qi
q0 = 0, q1 = 5,000, q2 = 10,000
C0 = $3.00, C1 = $2.96, C2 = $2.92
D = 120,000/year, S = $100/lot, h = 0.2
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. 11-59
Marginal Unit Quantity Discount Example
Step 2
Q0* =q1 =5,000 because Q0 =6,324 > 5,000
Q1* =q2 =10,000; Q2 =Q2 =16,961
Step 3
æD ö
TC0 =çç * ÷S + éV + (Q * – q )C ùh / 2 + D éV + (Q * – q )C ù=$363,900
÷ ë0 0 0 0û * ë 0 0 0 0û
Q
è 0ø Q 0
æD ö
TC1 =ç ÷S + éV + (Q * – q )C ùh / 2 + D éV + (Q * – q )C ù=$361,780
çQ * ÷ ë 1 1 1 1û
Q * ë1 1 1 1û
è 1ø 1
æD ö
TC2 =ç ÷S + éV + (Q * – q )C ùh / 2 + D éV + (Q * – q )C ù=$360,365
çQ * ÷ ë 2 2 2 2û
Q * ë 2 2 2 2û
è 2ø 2
2D(S R + S M )
Q* = =9,165
hRC R + hM C M
æD ö æQ * ö
Annual cost for DO =ç ÷S R + ç ÷hRC R =$4,059
èQ * ø è2 ø
æD ö æQ * ö
Annual cost for manufacturer =ç ÷S M + ç ÷hM C M =$5,106
èQ * ø è2 ø
Figure 11-5
d dD CQ *
Q = +
(C – d)h C – d
0.15 ´ 120,000 3 ´ 6,324
= + =38,236
(3.00 – 0.15) ´ 0.20 3.00 – 0.15
Figure 11-6
• Divide all parties within a stage into groups such that all
parties within a group order from the same supplier and
have the same reorder interval
• Set reorder intervals across stages such that the receipt
of a replenishment order at any stage is synchronized
with the shipment of a replenishment order to at least
one of its customers
• For customers with a longer reorder interval than the
supplier, make the customer’s reorder interval an integer
multiple of the supplier’s interval and synchronize
replenishment at the two stages to facilitate cross-
docking
Figure 11-8