what is the comment for the below? The first and most visible element is the acquisition price of the goods themselves, but the economic order quantity logic we studied in Week 4 shows that the invoice price is only one slice of the total. Each order triggers a group of more or less fixed ordering or setup expenses: time spent checking inventory, transmitting the purchase order, receiving and checking the shipment, and doing the back-room paperwork. The less frequently the store orders, the fewer times those fixed costs occur. Against that stand the costs of carrying the additional inventory that large, infrequent orders create. Holding cost is conventionally expressed as a percentage of the inventorys value and bundles four components we covered in the slides: the opportunity cost of capital tied up in stock, the physical storage cost (space, handling, utilities), the service cost (insurance and taxes), and the risk cost (loss, damage, shrink, or product obsolescence). A supermarket with thin margins and rapid product turnover in its centre store aisles tends to treat the cost of capital and the risk of expiration as particularly salient portions of the holding cost percentage. The supermarket also has to respect the expected stock out cost. If the chosen lot size is so small that the shelf risks going empty between deliveries the retailer may forfeit sales and disappoint consumers; in some categories that lost sale migrates to a competitor and is never recovered. The service level target converts that reputational and revenue penalty into a statistical safety stock requirement that adds to the inventory the store must finance. Because groceries arrive mainly on pallets or cases, transportation cost per unit depends on shipment size and mode. Ordering in truck load quantities may earn a lower freight rate, whereas a very small, expedited shipment comes with a higher per case freight bill. Finally, P&G often offers all unit or incremental quantity discounts and occasionally trade deals. Those price breaks complicate the holding versus ordering trade off the supermarket is trying to juggle: buying enough to capture the discount lowers unit price but raises every element of carrying cost. 2. If the supermarket chooses its lot size strictly to minimise the sum of its own ordering and inventory carrying costs it will ignore the cost (and risk) profile faced by Procter & Gamble upstream. That narrow objective can injure the supply chain in two ways. First, a very small supermarket order, optimal from the stores standpoint because it suppresses on-hand inventory, forces P&G to run smaller, more frequent manufacturing and shipping batches, which raise P&Gs marginal production, picking and transport costs. Second, a very large supermarket order placed only when inventories hit zero keeps P&Gs factory and distribution network idle for long stretches, then overwhelms them, creating capacity spikes or emergency freight. In both cases the total cost borne jointly by retailer and supplier, and therefore the profit they can share, is higher than necessary. Economists call the result double marginalisation: each party adds its own cost minimising markup or batch policy, and the compound effect enlarges system wide cost beyond the minimum feasible. If the two stages could coordinate, they would seek the lot size (or replenishment rule) that minimises the aggregate of retailer holding/ordering cost and supplier production/transport cost, subject to the agreed service level. Typically that jointly optimal solution involves the retailer ordering slightly more often and the supplier producing or shipping in steadier, better loaded runs. The joint policy reduces total safety stock, flattens capacity utilisation, and cuts avoidable transportation expense, so the overall surplus, the slice of revenue left after collective cost, is larger. That extra surplus can be divided so that both parties earn more than they did under unilateral optimisation. Supply chain practice offers several mechanisms to achieve this coordination. Vendor managed inventory shifts the ordering decision upstream. Quantity flexibility or buy back contracts share the risk of over or under stock. Revenue sharing contracts encourage the retailer to expand orders because the supplier rebates part of the unsold goods cost. Everyday low price programmes dampen the promotional spikes that exaggerate batch sizes. Information sharing (POS data, on hand files, planned promotions) lets the manufacturer plan level production even when the retailers orders fluctuate. Each device attacks one piece of the misalignment, but the goal is the same: replace two myopic cost minima with a single, system wide optimum and then allocate the gains so that every stage is better off cooperating than acting alone.