Cycle inventory exists because producing or purchasing in large lots allows a stage of the supply chain to exploit economies of scale and lower cost - through volume or lot sized discounts. By definition, cycle inventory is the average inventory in a supply chain due to either production or purchases in lot sizes that are larger than those demanded by the customer.

1. This week I want you to pick a company and discuss that company's management of cycle inventory. First of all, describe the product the company sells and the kind of inventory needed to produce this item. For example, McDonald's makes hamburgers, so what is the cycle inventory for ground beef. Estimate the company's ordering and holding costs. You will need to look at the company's annual report to determine the WACC. Discuss obsolescence cost, handling cost, occupancy cost, buyer time, transportation costs, receiving costs, and any other costs. What the Economic Order Quantity would be for the item you discuss. Estimate to the best of your ability what D=Annual demand of the product , S= Fixed cost incurred per order, C=Cost per unit of product, and h=Holding cost per year as a fraction of product cost would be - explain why you use these numbers based on your discussion above.