Rugged Systems, Inc. (RSI) designs and manufactures medical grade all-in-one computer systems developed specifically for application in healthcare environment. Medical grade computer systems are developed to meet standard requirements, such as IEC 6060, as well as others that make them a better fit than the consumer grade computers for medical applications, i.e. ruggedized, easily cleanable for infection control, etc.

RSI customers include hospitals, clinics, private practices, laboratories, etc. RSI's portfolio offers several standard computer platforms the customers can choose from, as well as highly customized solutions that are tailored to specific customer specifications. One of RSI standard platforms is the Base-Care Platform (BCP), which has been popular with small and medium size clinics and private practices. While BCP sales have been growing, there are a number of competing platforms that are available from competitors.

RSI products are sold through a channel-partner firm (sales-rep) that also offers other brands of medical all-in-one systems. The sales-rep receives the order from RSI's distribution center within 3 days after notifying it, provided that the stock is available. Since competition is fierce, backorder is not a viable option for BCP. In such cases, RSI simply loses that amount of business.

Below are some key data for BCP:

BCP retail price is $1800 per unit

BCP cost per unit is $600

BCP manufacturing + ship cycle time (lead time) is approximately 1 month

RSI incurs ordering costs of $70 each time an order is placed for BCP.

Monthly inventory carrying costs for BCP are $10 per unit

RSI wants to maintain a 97% service level with its BCP customers

Assume we are now approaching the end of this year. A demand forecast for BCP in the upcoming year has been prepared - see below table - and will be used to make an inventory plan for BCP.

MONTH BCP Demand (units) for the Upcoming Year

Jan 3000

Feb 5000

Mar 4000

Apr 7000

May 12000

Jun 8000

Jul 7000

Aug 5000

Sep 4000

Oct 3000

Nov 5000

Dec 6000

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TOTAL 69000

A. Choose an appropriate inventory model to recommend for managing inventories for next year. Specifically, articulate what model you have chosen and why it is an appropriate model to use in this case. Show details of your work, i.e. describe the model/approach and show the equations, if any, that you use.

B. Determine the reorder point (ROP).

C. Determine the Total Annual Inventory costs. Show details of your work, i.e. describe the approach and show the equations, if any, that you use.