Problem statement - Supply Chain Coordination Part II
S-Mart is a local convenience store (retailer), which manages an inventory of a SKU for resell to customers. S-Mart faces a constant demand for the SKU (i.e., demand rate is "horizontal" and not random) with the annual total demand being 25,000 units, and orders from a local supplier for resupplies.
S-Mart uses the EOQ model to manage its inventory. It costs $60 ordering cost for S-Mart to place an order. The supplier charges S-Mart $50 for each unit of supply. S-Mart’s inventory holding cost per unit, per year is 35% of the cost of purchase from the supplier. (Let's assume all assumptions for the EOQ model are satisfied.)
For every order received from S-Mart, the supplier executes one production run to fully and instantly meet the order's requirement. The supplier’s setup cost for each production run is $180. The supplier delivers the order to S-Mart immediately after production, so the supplier holds no inventory.
(Continue with supply chain in "Supply Chain Coordination Part I", but with the following new information.)
Suppose that you correctly calculate the costs of S-Mart and the supplier to be as follows:
If S-Mart uses the EOQ that is optimal for itself (i.e., S-Mart), then
S-Mart's annual total costs = $6,480
The supplier's annual total costs = $9,702
If S-Mart uses the EOQ that is optimal for for the supply chain (i.e., S-Mart and the supplier combined), then
S-Mart's annual total costs = $8,103
The supplier's annual total costs = $4,858
Answer the following questions:
1. To create an incentive for S-Mart and the supplier to participate in "coordination" with a transfer payment, it must be paid by _____ to the other firm.
Group of answer choices:
S-Mart
The supplier
Neither
2. The amount of the payment must fall in the range of [ Select ] ["from $3,222 to $3,245", "from $4,858 to $6,480", "from $8,103 to $9,702", "from $1,623 to $4,844"]
