By John Neter
Utilized Linear Statistical versions
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For example, economies of scale favor infrequent orders of large quantities of material, whereas reducing inventory carrying costs requires more frequent shipments of smaller quantities. For any given rate of flow, the smaller the packets become, the closer the chain comes to operating as a continuous flow rather than moving discrete lumps of demand, supply, and cash across the chain. 5. 5 illustrates, each exchange of demand, supply, or cash takes place between a customer and a supplier. In this book, these terms refer to the parties involved in a transaction across any link of the chain, regardless of their location within the chain.
Chrysler's SCORE program—at least in its early years—was an excellent example of how much can be achieved this way. 7 billion in savings didn't come out of its suppliers' hides; suppliers saved money right along with Chrysler. The savings came from finding better ways to build a car. What made this program different is that SCORE fostered true innovation rather than just escalating the competition for a fixed amount of money. The Ohio State researchers mentioned at the beginning of this section reached the same conclusion, based on their study of national data.
Yet this is precisely the point in the chain that can be the hardest to manage because it is the first point to feel the impact of changing consumer preferences. It is also the point where the chain becomes visible to the consumer, so it's critical to manage it well. If the desired product isn't on the shelf when a consumer walks in to buy it, even the most perfect sequence of supply operations is a failure. 2). In the traditional arrangement, retailers manage their own inventories and replenish them as they see fit.
Applied linear regression models by John Neter