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7 Managing of Economics of Scale Ekstensi2014
7 Managing of Economics of Scale Ekstensi2014
*
) (
Q
*
: Normal order quantity
C: Normal unit cost
d: Short term discount
D: Annual demand
h: Cost of holding $1 per
year
Q
d
: Short term order quantity
Short Term Discounts:
Forward Buying
DO is retailer that sells Vitaherb, a popular vitamin diet
supplement.
Annual demand, D = 120,000
Normal cost, C = $3 per bottle
Holding cost, h = 0.2
Normal order size, Q
*
= 6,324 bottles
Discount per tube, d = $0.15
Optimal lot size during promotion:
Q
d
= dD/(C-d)h + CQ*/(c-d)
= [(0.15)(120000)/(3.00-0.15)(0.2)] + [(3)(6324)/(3.00-0.15)]
= 38,236 bottles
Forward buy = Q
d
Q
*
= 38,236 6,324 = 31,912 bottles
Trade Promotions
When a manufacturer offers a promotion, the goal for the
manufacturer is to take actions (countermeasures) to
discourage forward buying in the supply chain
Counter measures
EDLP (every day low pricing): price is fixed over time
and no short-term discounts are offered
Eliminates any incentive for forward buying
As a result, all stages of the supply chain purchase in
quantities that match demand
Scan based promotions: e.g. retailer receives credit
for the promotion discount for every unit sold
Customer coupons
Exercise pg 322
Number 11
Number 12
Number 13
References
Chopra S. and P. Meindl, Supply Chain
Management, 5e, Prentice Hall, 2013
Handfield, Monczka, Giunipero and Patterson,
Sourcing and Supply Chain Management, 4e,
South-Western, 2009
Cachon and Terwiesch, An Introduction to
Operations Management, 2e, McGraw-Hill, 2009