supplies4medics.com Founded almost 20 years ago, supplies4medics.com has become one of Europe's most successful direct mail suppliers of medical hardware and consumables to hospitals, doctors' and dentists' surgeries, clinics, nursing homes and other medical related organizations. Its physical and online catalogues list just over 4,000 items, categorized by broad applications such as 'hygiene consumables' and 'surgeons' instruments'. Quoting its website: "We are the pan-European distributors of wholesale medical and safety supplies...We aim to carry everything you might ever need; from nurses' scrubs to medical kits, consumables for operations, first aid kits, safety products, chemicals, fire-fighting equipment, nurse and physicians' supplies, etc. Everything is at affordable prices - and backed by our very superior customer service and support - supplies4medics is your ideal source for all medical supplies. Orders are normally dispatched same-day, via our European distribution partner, the Brussels Hub of DHL. You should therefore receive your complete order within one week, but you can request next day delivery if required, for a small extra charge. You can order our printed catalogue on the link at the bottom of this page, or shop on our easy-to-use on-line store." Last year turnover grew by over 25% to about E120 million, a cause for considerable satisfaction in the company. However, profit growth was less spectacular; and market research suggested that customer satisfaction, although generally good, was slowly declining. Most worrying, inventory levels had grown faster than sales revenue, in percentage terms. This was putting a strain on cash flow, requiring the company to borrow more cash to fund the rapid growth planned for the next year. Inventory holding is estimated to be costing around 15% per annum, taking account of the cost of borrowing, insurance, and all warehousing overheads. Pierre Lamouche, the Head of Operations, summarized the situation faced by his department: "As a matter of urgency, we are reviewing our purchasing and inventory management systems! Most of our existing re- order levels (ROLs) and re-order quantities (ROQs) were set several years ago, and have never been recalculated. Our focus has been on rapid growth through the introduction of new product lines. For more recently introduced items, the ROQs were based only on forecast sales, which actually can be quite misleading. We estimate that it costs us, on average, 50 euros to place and administer every purchase order, since most suppliers are still not able to take orders over the internet or by EDI. In the meantime, sales of some products have grown fast, whilst others have declined. Our average inventory (stock) cover is about 10 weeks, but...amazingly...we still run out of critical items! In fact, on average, we are currently out of stock of about 500 SKUs (Stock Keeping Units) at any time. As you can imagine, our service level is not always satisfactory with this situation. We really need help to conduct a review of our system, so have employed a mature intern from the local business school to review our system. He has first asked my team to provide information on a random, representative sample of twenty items from the full catalogue range, which is copied below." Sample Catalogue Sales Last 12 Inventory as Re-order number reference Sales unit description unit cost months' at last year quantity number (euros) sales (units) end (units) (units) 1 11036 Disposable Aprons (10pk) 2.40 100 0 0 2 11456 Ear-loop Masks (Box) 3.60 6,000 120 120 3 11563 Drill Type 164 1.10 220 420 420 4 12054 Incontinence Pads Large 3.50 35,400 8,500 8,500 12372 150ml Syringe 11.30 430 120 120 6 12774 Rectal Speculum 3 Prong 17.40 65 20 20 12979 Pocket Organizer Blue 7.00 120 160 160 8 13063 Oxygen Trauma Kit 187.00 40 2 2 CO 13236 Zinc Oxide Tape 1.50 1260 0 0 10 13454 Dual Head Stethoscope 6.25 10 16 16 11 13597 Disp. Latex Catheter 0.60 3,560 12 12 12 13999 Roll-up Wheelchair Ramp 152.50 12 44 44 13 14068 WashClene Tube 1.40 22,500 10,500 10,500 14 14242 Cervical Collar 12.00 140 24 24 15 14310 Head Wedge 89.00 44 2 2 16 14405 Three-Wheel Scooter 755.00 14 5 5 17 14456 Neonatal Trach. Tube 80.40 268 6 9 18 14675 Moldable Strip Paste 10.20 1,250 172 172 19 14854 Sequential Comp. Pump 430.00 430 40 40 20 24943 Toilet Safety Frame 25.60 560 18 18 II. Statement of the Problem a. Prepare a spreadsheet-based ABC analysis of usage value. Classify as follows: i. A-items: Top 20% of usage value ii. B- items: Next 30% of usage value iii. C-items: Remaining 50% of usage value b. Calculate the inventory weeks for each item: for each classification, and for all the items in total. Does this suggest that the Head of Operations' estimate of inventory weeks is correct? C. If so, what is your estimate of the overall inventory at the end of the base year, and how much might have increased during the year? d. Calculate the EOQs for the A-items