Role of Cycle Inventory in a Supply Chain Cycle inventory is held primarily to take advantage of economies of scale in the supply chain Supply chain costs influenced by lot size: Material cost C Fixed ordering cost S Holding cost H hC (h cost of holding $1 in inventory for one year) Primary role of cycle inventory is to allow different stages to purchase product in lot sizes that minimize the sum of material,ordering,and holding costs Ideally,cycle inventory decisions should consider costs across the entire supply chain,but in practice,each stage generally makes its own supply chain decisions -increases total cycle inventory and total costs in the supply chain SEIEE AU406 10+ - SEIEE AU406 Role of Cycle Inventory in a Supply Chain  Cycle inventory is held primarily to take advantage of economies of scale in the supply chain  Supply chain costs influenced by lot size:  Material cost = C  Fixed ordering cost = S  Holding cost = H = hC (h = cost of holding $1 in inventory for one year)  Primary role of cycle inventory is to allow different stages to purchase product in lot sizes that minimize the sum of material, ordering, and holding costs  Ideally, cycle inventory decisions should consider costs across the entire supply chain, but in practice, each stage generally makes its own supply chain decisions – increases total cycle inventory and total costs in the supply chain 10