RxPharma Supply It was 5:20 on a Friday afternoon when George Palermo had finally returned to...

Transcribed Image Text:

RxPharma Supply It was 5:20 on a Friday afternoon when George Palermo had finally returned to his office, sat in front of his desk and reflected on his first month working for RxPharma Supply. He was appreciative for finding a collegial environment where everybody is very supportive. Earlier that week he spent time with Joey Williams, the purchasing manager, in order to learn how orders for pharmaceuticals are made. Joey explained that Pharma carries about 8500 different SKUs with varying costs, demands, lead-times and more. Consequently, ordering decisions are not simple to make but luckily his 20 year experience with the company gives him the ability to make these decisions without the need to delve into much information. When George asked Joey whether he uses a specific model such as the EOQ Joey responded that after so many years he knows the business so well and therefore doesn't need a model. RxPharma is a pharmaceutical wholesaler located outside of Cleveland, Ohio. It is the main supplier to about 250 independent pharmacies in the region. In order to satisfy their demand Pharma has contracted with many manufacturers. Pharma experiences a continuous and steady demand for its products and therefore places orders regularly. Joey Williams has joined Pharma twenty years ago as a sorter in the warehouse. Soon his supervisor realized that Joey is well organized and quick to follow instructions which made him a good candidate for a promotion once became available. Since then he rose through the ranks and is now Pharma's purchasing manager. In his role he oversees all pharmaceutical acquisitions and also in charge of suppliers' relationship. As Pharma's cliental base grew Joey was unable to handle all the acquisitions and asked management to hire an assistant. Management reviewed his request and after lengthy considerations supported Joey's request and recommended that the new assistant will hold a business degree with operations management training in order to help Joey and also look for potential improvements. Shortly after George Palermo earned his business degree from Eastern Tech University he joined RxPharma Supply in the new position of assistant purchasing manager. During the first two weeks he became familiar with the different items and spent time in the distribution center to observe incoming and outgoing shipments. Towards the end of his first month on the job George felt that it was time to apply his business skills by gathering data and evaluate Pharma's operations. Realizing that Pharma's demand is stable he thought that using the EOQ concept will be appropriate. As this formula is data driven he approached Joey to find out where will this data can be found. Joey reminded George that after 20 years there is no need for formulas and that "the business is running well as evident by customers' satisfaction. Just follow me, do what I do and you will be fine." Back in his office George was replaying Joey's advice in his mind again and again. It then dawned on him that if he will simply follow this advice it implies that his business education is not that relevant. George could not accept this idea and decided to reach to the marketing and accounting departments in order to gather data about demand and costs. Since RxPharma sells 8500 SKU's he decided to start with a random pilot of 11 items. From his department he was also able to get the order quantities. The information is presented in the following table. Product Annual Demand (unit/year) Ordering Cost ($/order) Holding Cost ($/unit-year) Order Quantity (unit) Levison 271 12 2.91 36 Nizoral 523 12 2.55 48 Vasotec 1352 12 10.79 36 Ralafen 1882 12 10.76 108 Zantac 7130 12 11.5 288 Lasix 304 12 22.55 16 Coumadin 1017 12 6.55 60 Atrovent 4161 12 3.26 144 Dipentum 393 12 6.47 24 Ceclor 1292 12 23.95 24 Lozol 1124 12 8.61 84 Can George help RxPharma improve its performance? Should he rely on this data? Does the data support Joey's purchasing practice? RxPharma Supply It was 5:20 on a Friday afternoon when George Palermo had finally returned to his office, sat in front of his desk and reflected on his first month working for RxPharma Supply. He was appreciative for finding a collegial environment where everybody is very supportive. Earlier that week he spent time with Joey Williams, the purchasing manager, in order to learn how orders for pharmaceuticals are made. Joey explained that Pharma carries about 8500 different SKUs with varying costs, demands, lead-times and more. Consequently, ordering decisions are not simple to make but luckily his 20 year experience with the company gives him the ability to make these decisions without the need to delve into much information. When George asked Joey whether he uses a specific model such as the EOQ Joey responded that after so many years he knows the business so well and therefore doesn't need a model. RxPharma is a pharmaceutical wholesaler located outside of Cleveland, Ohio. It is the main supplier to about 250 independent pharmacies in the region. In order to satisfy their demand Pharma has contracted with many manufacturers. Pharma experiences a continuous and steady demand for its products and therefore places orders regularly. Joey Williams has joined Pharma twenty years ago as a sorter in the warehouse. Soon his supervisor realized that Joey is well organized and quick to follow instructions which made him a good candidate for a promotion once became available. Since then he rose through the ranks and is now Pharma's purchasing manager. In his role he oversees all pharmaceutical acquisitions and also in charge of suppliers' relationship. As Pharma's cliental base grew Joey was unable to handle all the acquisitions and asked management to hire an assistant. Management reviewed his request and after lengthy considerations supported Joey's request and recommended that the new assistant will hold a business degree with operations management training in order to help Joey and also look for potential improvements. Shortly after George Palermo earned his business degree from Eastern Tech University he joined RxPharma Supply in the new position of assistant purchasing manager. During the first two weeks he became familiar with the different items and spent time in the distribution center to observe incoming and outgoing shipments. Towards the end of his first month on the job George felt that it was time to apply his business skills by gathering data and evaluate Pharma's operations. Realizing that Pharma's demand is stable he thought that using the EOQ concept will be appropriate. As this formula is data driven he approached Joey to find out where will this data can be found. Joey reminded George that after 20 years there is no need for formulas and that "the business is running well as evident by customers' satisfaction. Just follow me, do what I do and you will be fine." Back in his office George was replaying Joey's advice in his mind again and again. It then dawned on him that if he will simply follow this advice it implies that his business education is not that relevant. George could not accept this idea and decided to reach to the marketing and accounting departments in order to gather data about demand and costs. Since RxPharma sells 8500 SKU's he decided to start with a random pilot of 11 items. From his department he was also able to get the order quantities. The information is presented in the following table. Product Annual Demand (unit/year) Ordering Cost ($/order) Holding Cost ($/unit-year) Order Quantity (unit) Levison 271 12 2.91 36 Nizoral 523 12 2.55 48 Vasotec 1352 12 10.79 36 Ralafen 1882 12 10.76 108 Zantac 7130 12 11.5 288 Lasix 304 12 22.55 16 Coumadin 1017 12 6.55 60 Atrovent 4161 12 3.26 144 Dipentum 393 12 6.47 24 Ceclor 1292 12 23.95 24 Lozol 1124 12 8.61 84 Can George help RxPharma improve its performance? Should he rely on this data? Does the data support Joey's purchasing practice?