RSM370H1 Lecture Notes - Lecture 4: Carrying Cost, Stockout, Opportunity Cost
Document Summary
Lecture 4: managing inventories and uncertainty in a. Firm needs to make supply planning decision after predicting demand. Typically made using enterprise resource planning (erp) software. Decide on workforce size, overtime, inventory, stockout, subcontractors, production size: supply management decisions influence costs and constraints, can manage demand variation jointly using pricing (marketing) and supply side (operations) decisions. Offering discount during off-peak season decreases demand variability: lower variability increases benefit of level strategy. Promotion performs better if offered off peak: because increase in revenue comes at a cost, margin is so thin that increased costs dominate if promotion offered during peak season. Increased cost of offering promotion during peak season can be offset by very strong market growth. Low demand period: decisions by one department must align with strategy of other departments. Marketing must take into account increase in costs on operations side when offering. Must balance revenue and costs to maximize profit discount: cannot optimize in isolation.
