Hardy hospital operated as either regular stock or special order. Since the hospital coordinators like the nurses were responsible for initiating special orders even for the University, the organization was prone to losses emanating from expenses. Therefore, the University director, Paris, was right to initiate an evaluation of the current material management system from Carolyn, the hospital director, to ensure reduction in costs.
In this regard, the hospital director should explore the nurse of economic order quantity (EOQ) reorder point. EOQ reorder point is a method for determining the number of inventory units to buy, resulting in the lowest net expense to the purchasing organization. It achieves a cost-effective equilibrium between the cost of ordering inventory and the cost of keeping inventory (Collier, & Evans, 2020, p. 331). It’s a good idea to experiment with different ordering costs and annual carrying costs and establish it best affect the EOQ. Lowering inventory’s annual carrying cost would likely have a big impact on the EOQ reorder point. Therefore, identifying which carrying costs related to inventory volume and unrelated fixed costs is an important part of this study.
The Good Estimates of the Order Cost and Inventory-holding Cost
Order Cost: Employee Benefits and Overhead are $24 per hour, and a single purchase order is expected to take 3 hours. An average order has 4 SKUs.
$24 x 3 = $72 total purchase order cost
$72/4 = $18 order cost
Inventory/Stock-Holding cost: The average annual Semi variable and variable cost for storage space in the year was $4.60 per square feet, a total of 5 workers with earnings of $32000 a year each, hospital storeroom used 36750 square feet of storage space, benefits and overhead rates 20%, obsolescence and taxes of $400000 a year, 8.9 estimate cost of money
$4.60 x 36750 =$169050 total storage space cost
5 x $32000=$160000 (total salaries per year) x.20 =$32000 total benefits and overhead cost
$160000+$32000=$192000 total employee cost
$761050/$4.15 million=.1833= 18.3% of item cost
18.3% + 8.9%= 27.2% annual inventory-holding costs of item cost
Based on the above data, the assumptions made from Hardy hospital depend on maintenance cost. For instance, the costs of maintaining unsold inventory are referred to as holding costs. These prices, along with purchasing and scarcity costs, make up a portion of all inventory costs. The cost of lost or defective products and warehouse space, staff, and insurance are all included in a company’s keeping costs.
EOQ and Reorder Point with Safety Stock for Strike Disinfectant
D= mean 11.63 gal/4 gal = 2.9075 cases x 52 weeks = 151.19 cases
Co= $18 order cost
I= 18.3% + 8.9% = 27.2%
C= $84.20 per case
Ch= $84.20 x.272= $22.90 a case
= 15.42 cases or 61.68 gallons
TC=1/2q(22.90)+151.19/q (18) TC=11.45×15.42+151.19/15.42×18
TC= 176.559+176.486= $353.05
D: 2.9075 cases per week
L: 2 weeks lead time
= 5.815 rounding to 6 cases
6 cases reorder points
Compute the total order and inventory-holding costs for a fixed-quantity system (FQS) and compare to the current order Q’s. Can you save money by adopting an FQS?
Average demand of 2.9075 x 2 =5.815 cases – restock with no safety.
The standard deviation of 8.02 √2= 11.34 cases
The service level of 97%
Z-value of 1.88
Reorder point with safety stock= 5.815+ 1.88(11.34)= 5.815+21.3192= 27.1342 cases
Q=√2= 15.42 cases or 61.68 gallons-EOQ
FQS Reorder Point= 27 cases with safety stock or 6 cases without safety stock
EOQ Reorder Point= 15 cases
The Qs are very different between the FQS and EOQ. Having the safety stock will eliminate or severely lower the chances of demand or completely no demand.
When the at-hand stock falls below the defined reorder stage, a fixed order quantity scheme is used, in which the inventory volume is continually tracked. Replenishment stock is ordered in previously-fixed quantities. In other words, it’s an Inventory Control System.
For a long time, the fixed order structure has been used to keep stock prices relatively constant. As a result, because there are significant demand increases, there will be no stock-outs. The fixed order would have been set after the economic order amount has been determined, ensuring that orders are placed only when they are commercially feasible, resulting in less waste. The stock can also be tracked and replenished with no human intervention, thanks to the fixed point. The technology helps keep track of stock levels, and orders are produced automatically, so there’s no chance of anyone failing to position an order.
Final Action Plan and Recommendation
When it comes to buying goods and facilities, both the organizations have statutory responsibilities. In most cases, the procedure can be lengthy and inconvenient. This can be mitigated by examining stocks accordingly. I would recommend the creation of such arrangements as Blank Purchase Agreements and year-long contracts against which shipping orders are taken. In this case, a central department is used to keep track of all regular and special orders. This will help in reducing too much waste and allow one the opportunity to save money by ordering all-at-once. The central materials division would receive requests from each agency. They would be able to group them per special criteria where instructions would be handled in the same manner.
Collier, D. A., & Evans, J. R. (2020). Operations and supply chain management. Centage Learning.