Question

Question 11.6

The materials manager of an ambulatory surgery center is looking to determine the appropriate order quantity and reorder points for customized surgical kits. A custom surgical kit costs $50 to order, and the annual carrying cost is 10 percent of the product cost. Annual demand for surgical kist is 3,600 and the purchase price is $200. Lead time for delivery is two weeks.

a. What is the economic order qualtity for surgical kits?

b. What is the length of the order cycle?

c. What is the total inventory management cost?

d. What is the investment cost for surgical kits?

e. Assuming the surgery center would like to hold fifty kits as safety stock, what is the reorder point?

Answer 1

Annual Demand D = 3600

Ordering Cost S = 50

Unit Cost P = 200

Holding Cost H = 200*10% = 20

EOQ = (2DS/H)^(1/2)

EOQ = (2*3600*50/20)^(1/2)

EOQ = 134.16 units

EOQ = 134 units

Inventory Cost = Annual Holding Cost + Annual Ordering Cost

Inventory Cost = (EOQ/2)*H + (D/EOQ)*S

Inventory Cost = (134/2)*20 + (3600/134)*50

Inventory Cost = 2683.28

Purchase Cost = P*D = 200*3600 = 720000

Total cost = 2683.28+720000 = 722683.28

Weekly Demand d = 3600/52 = 69.23

Reorder Point = d*Lead Time + Safety Stock

ROP = 69.23*2 + 50

ROP = 188.46