MANAGEMENT

Detailed explanation-1: -Lot size-based discounts tend to raise cycle inventory in the supply chain by encouraging retailers to increase the size of each lot. Lot size-based discounts make sense only when the manufacturer incurs a very high fixed cost per order.

Detailed explanation-2: -Cycle inventory is the physical inventory in the supply chain due to either production or purchases demanded by the customer. Lot sizes and cycle inventory do not affect the flow time of material within the supply chain. Average flow time resulting from cycle inventory = Cycle Inventory/Demand = Q/2D.

Detailed explanation-3: -A key to reducing cycle inventory is the reduction of lot size. A key to reducing lot size without increasing costs is to reduce the holding cost associated with each lot. Reduction of fixed cost may be achieved by aggregating lots across multiple products, customers, or suppliers.

Detailed explanation-4: -Cycle inventory is inventory carried to satisfy demand that exceeds the amount forecasted for a given period. Given the product variety and high demand uncertainty in most high-tech supply chains, a significant fraction of the inventory carried is safety inventory.