Opportunity Cost of Capital.

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Chapter 5, Application Problem 3
The following discussion describes a new inventory system used by J. C. Penney39: 39 Gabriel Kahn, “Made to Measure: Invisible Supplier Has Penney’s Shirts All Buttoned Up,” Wall Street Journal, September 11, 2003.

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In an industry where the goal is rapid turnaround of merchandise, J.C. Penney stores now hold almost no extra inventory of house-brand shirts. Less than a decade ago, Penney would have stored thousands of them in warehouses across the U.S., tying up capital and slowly going out of style. Take a look at https://en.wikipedia.org/wiki/Cost_of_capital

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The entire program is designed and operated by TAL Apparel Ltd., a closely held Hong Kong shirt maker. TAL collects point-of-sale data for Penney’s shirts directly from its stores in North America for analysis through a computer model it designed. The Hong Kong company then decides how many shirts to make, and in what styles, colors, and sizes. The manufacturer sends the shirts directly to each Penney store, bypassing the retailer’s warehouses and corporate decision makers.

a. Discuss how this case illustrates the concept of the opportunity cost of capital.
b. How does this innovation also help in demand management?

 

Chapter 6, Application Problem 1

Discuss how the examples in the opening case show how the choices facing a firm making a long-run decision on plant location are much greater than those for a firm with a plant already in operation. Why is the long run considered to be a planning horizon?

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