Scenario 11.3 - Sammy's Sammwiches
Sammy's is the hot new lunch spot among the hipsters,who flock there at noon for their artisanal peanut butter and jelly sandwiches,which sell for $12.95.The sandwiches are made from two slices of their own artisanal bread,which they bake continuously throughout the day at a rate of seven loaves an hour (each loaf contains twenty slices).The actual cost of a loaf of bread is $1 and the cost to hold a loaf is 80%,since freshness is important in baking as well as to hipsters.The cost to run a new batch of a dough is $3 per loaf.Sammy's sells their sandwiches at a rate of fifty per hour.
-A key to reducing cycle inventory is

Question

Quizplus · Accepted Answer

The reduction of lot size is the key to reducing cycle inventory as it allows for smaller batches to be produced and sold, reducing the need for excess inventory to be held. In this case, if Sammy's were to reduce their batch size for baking bread, they could reduce the amount of inventory they need to hold and therefore reduce their cycle inventory. The reduction of holding cost and warehouse space may also play a role in reducing overall inventory costs, but they are not specifically related to reducing cycle inventory. The reduction of manufacturing cost may not necessarily lead to a reduction in cycle inventory if it does not also result in a reduction of lot size.