Purchase order hold

Markdown money refers to payments by manufacturers to retailers to cover shortfalls in the planned increase in sales due to promotions. For example, some large retailers demand that observed sales be at least 85% of planned sales within 45 days of purchase order issued. For example, suppose a retailer purchased 100,000 units to cover anticipated sales, but only 60,000 pieces were sold. Under the 85% agteement, the vendor would need to provide funds to the retailer to get the 85% sell-through. This may happen, for example, by paying 0.25 per unit for 85,000 — 60,000 = 25,000 units or 6,250. For subsequent markdowns to clear product, it may be necessary to take an additional 25% of this markdown, i.e., 6,250 X 25% = 1,562. Note that markdown money holds the manufacaiurer responsible for reasonable forecasts by reducing the inc en-tive to push stocks to the retailer. 

For example, if a shovel costs a hardware store 30 to purchase, the holding cost rate is 20%, the annual demand is 2,000 shovels, the order quantity is 100, and the order cost is 100, then we can calculate the total cost of inventory as ... 

Customer sales orders for products are tracked against corresponding purchase orders made to suppliers as well as existing inventory holdings, while optimal inventory holding calculations are made through a combination of sales forecast, lead time, and economic replacement quantities (ERQ). In Bossard s case, ERQ is based on similar calculation to economic order quantity, but with an adjustment for real-world constraints in batch order quantities. 

Document that the reservoir conforms to purchase specification and invoice. Verify and document that the vessel meets or exceeds the pressure rating (vacuum) specified in the purchase specifications. Perform vacuum hold tests on the tank and document. Acceptance ID tests will vary with the size of the system. A positive pressure test is often done in order to find leaks. Perform and document cleaning procedures used prior to placing the vessel in service. This completes the normal testing done on the tank prior to joining it to the vacuum system. 

The total cost—setup cost plus holding cost—per time unit is XC/Q + hQ/2, where X/Q is the number of orders placed per time unit. Note that we have ignored the variable cost, the cost for purchasing the units, since this term is independent of the decision variable Q. It is equal to cA per time unit, with c being the purchasing cost per unit. The Q that minimizes this cost objective is Q = /2XCIh, which is easily derived from setting the derivative of the cost objective (with respect to 0 to zero. The square-root order quantity is often referred to as EOQ as well. 

The idea is to negotiate to achieve a win-win situation for both the safety and loss prevention professional and the specific vendor. Vendors often possess a certain amount of flexibility with regard to the purchasing arrangement, and the safety and loss prevention professionals should ascertain these perimeters in order to acquire the best deal possible. That is not to say that you should hold up the vendor or exploit the vendor in any way however, the safety and loss prevention professional should negotiate the best deal possible to benefit the company and employees. If you do not ask, you will not find out. 

The total annual demand of an item is 2000, the ordering cost is 20 and the stock holding cost per unit per year amounts to 10 per cent of its purchase cost. The cost per unit of an item is 80. 

L. L. Bean executes all processes in the customer order cycle after the customer order arrives. All processes that are part of the customer order cycle are thus pull processes. Order fulfillment takes place from product in inventory that is built up in anticipation of customer orders. The goal of the replenishment cycle is to ensure product availability when a customer order arrives. All processes in the replenishment cycle are performed in anticipation of d and and are thus push processes. The same holds true for processes in the manufacturing and procuranent cycles. In fact, raw material such as fabric is often purchased six to nine months before customer demand is expected. Manufacturing itself begins three to six months before the point of sale. The processes in the L. L. Bean supply chain break up into pull and push processes, as shown in Figure 1-6. 

The primary role of cycle inventory is to allow different stages in a supply chain to purchase product in lot sizes that minimize the sum of the material, ordering, and holding costs. If a manager considers the holding cost alone, he or she will reduce the lot size and cycle inventory. 

Demand for vitamins is 10,(XX) bottles per month. DO incurs a fixed order placement, transportation, and receiving cost of 100 each time it places an order for vitamins with the manufacturer. DO incurs a holding cost of 20 percent. The manufacturer charges 3 for each bottle of vitamins purchased. Evaluate the optimal lot size for DO. 

The costs the retailer must consider when making this decision are material cost, holding cost, and order cost. Increasing the lot size lowers the material cost for Cub Foods because it purchases more cans (for sale now and in the future) at the discounted price. Increasing the lot size g increases the holding cost because inventories increase. Increasing the lot size g lowers the order cost for Cub Foods because some orders that would otherwise have been placed are now not necessary. Cub Foods goal is to make the trade-off that minimizes the total cost. 

DO is a retailer that sells Vitaherb, a popular vitamin diet supplement. Demand for Vitaherb is 120,000 bottles per year. The manufacturer currently charges 3 for each bottle, and DO incurs a holding cost of 20 percent. DO currently orders in lots of Q = 6,325 bottles. The manufacturer has offered a discount of 0.15 for all bottles purchased by retailers over the coming month. How many bottles of Vitaherb should DO order given the promotion ... 

Prefab, a furniture manufacturer, uses 20,000 square feet of plywood per month. Its trucking company charges Prefab 400 per shipment, independent of the quantity purchased. The manufacturer offers an all unit quantity discount with a price of 1 per square foot for orders under 20,000 square feet, 0.98 per square foot for orders between 20,000 square feet and 40,000 square feet, and 0.96 per square foot for orders larger than 40,000 square feet Prefab incurs a holding cost of 20 percent. What is the optimal lot size for Prefab What is the annual cost of such a policy What is the cycle inventory of plywood at Prefab How does it compare with the cycle inventory if the manufacturer does not offer a quantity discount but sells aU plywood at 0.96 per square foot ... 

---