Aggregating Multiple Products in a Single Order

Consider the data from Example 11-1. Assume that Best Buy purchases four computer models, and the demand for each of the four models is 1,000 units per month. In this case, if each product manager orders separately, he or she would order a lot size of 980 units (as in Example 11-1). Across the four models, the total cycle inventory would thus be 4 X 980 = 1,960 units. 

Aggregating replenishment 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. 

Walmart and other retailers, such as Seven-Eleven Japan, have facilitated aggregation across multiple supply and delivery points without storing intermediate inventories through the use of cross-docking. Each supplier sends full truckloads to the DC, containing an aggregate delivery destined for multiple retail stores. At the DC, each inbound truck is unloaded, product is cross-docked, and outbound trucks are loaded. Each outbound truck now contains product aggregated from several suppliers destined for one retail store. 

When considering fixed costs, one cannot ignore the receiving or loading costs. As more products are included in a single order, the product variety on a truck increases. The receiving warehouse now has to update inventory records for more items per truck. In addition, the task of 

The reduced fixed cost of receiving makes it optimal to reduce the lot size ordered for each product, thus reducing cycle inventory. 

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