What is the EOQ and reorder point with safety stock for Strike Disinfectant given your answer to question 1.

Here is question one which I believe has the data.

1. What are good estimates of order cost and inventory holding costs? (State assumptions and show all computations)

EOQ refers to the economic order quantity model that minimizes the total cost, which is the sum of the inventory-holding cost and the ordering cost. The EOQ is the balance between the ordering cost and carrying cost.

In EOQ models, we assume the following:

• Only one SKU is considered
• The order quantity (Q) arrives in inventory at one time
• Only the order/set up and holding cost are relevant
• There are stockouts
• The demand for the single items is consistent (over time)
• Lead time is constant

Ordering Costs can be defined as the costs incurred on placing orders with Vendor suppliers.

Inventory-holding costs are defined as the number per unit cost of holding an item in stock (on hand) or the percentage of the unit cost per incurred on carrying the item. This included storage, facility cost, staff cost and equipment fees.

Formulas Examples:

Annual Ordering Cost = Average inventory xs Annual holding costs (per SKU)

= (1/2 x order quantity) x (annual holding cost as a % of unit cost x unit cost of item)

= (1/2 Q) x (IC)

Also please see #'s in this image:

EXHIBIT 11.16 Hardy Hospital Strike Disinfectant Data Case Size Cost per Case Order Lead Time 4 onions Week Week Sarike Disinfectant Beginning SKU Balance 95 Recept 200 Ending Balance The inventory balances are for the centro or gallons, nor caes 110 Week com ny. The rece b e estimate c order quantity Caroline had gathered information on the costs of or dering and storing hospital supplies. For order costs, shees- timated that, on average, the purchasing account payables, and receiving personnel spent three hours processing a single purchase order. A single purchase order typically in- cluded four SKUs (.e., each SKU on a purchase order was called a line item). The average hospital storeroom's wage was $18.50 an hour; with employee benefits and associated overhead, the cost of one worker-hour came to $94. For inventory-holling costs, the university warehouse and hospital storeroom used 36,750 square feet of storage space. The university stored an average of $1.15 million in EXHIBIT 11.17 Hardy Hospital Aggregate Strike Disinfectant Weekly Demand as Measured by Hospital Requisitions Week Strike of obsolescence. When a department needed a regular stock item, that department generally ordered (requisi. tioned) the item. If the item was in stock, it would be delivered to the department by the next delivery date. When the university did not normally stock an item, individual hospital departments could special order them. Special order items were supposed to be those of an experi- mental nature or critical to patient health care, but not used frequently. Hospital departments requiring these special items bypassed the university purchasing system. Once a special order was placed the hospital department informed university purchasing so that it could eventually authorize payment on the vendor's imvoice. Hospital department coor dinators, doctors, or head nurses were responsible for initiat- ing and for authorizing special orders. In total, these special orders required a significant amount of work that took de partment coordinators and head nurses away from their du- ties. University purchasing kept no records on the hospital's special onder inventories or for the 215 secondary hospital stocking points such as exam rooms and moveable carts. One department's head nurse explained that many departments were afraid of running out of regular stock items. University purchasing didn't understand the im- portance and nature of hospital inventory, and they were slow to respond. The nurse cited the months-long period university purchasing process needed to place new items on the regular stock list, and the long lead times some- times involved in receiving orders requisitioned from the university's approved vendor list Because the university was a state institution, strict bidding and purchasing procedures had to be followed for both regular stock and special orders. For example, three written bids were required for an individual order of $2.00) or more. The processing of these bids often took up to 2 months. For orders between $500 and $1.999, three telephone bids were necessary. In these situations, pur chises could be made only from the lowest bidder. Orders under $500, or items on the state contract list, could be ordered over the phone, without any bids, State contract list items were those for which statewide needs had been combined and one contract left to cover all of them. 16 Total 180 Mean 1163 2.02 Standard Deviation Cycle Service Level * D ectant demandis quoted in gallons 97% EXHIBIT 11.16 Hardy Hospital Strike Disinfectant Data Case Size Cost per Case Order Lead Time 4 onions Week Week Sarike Disinfectant Beginning SKU Balance 95 Recept 200 Ending Balance The inventory balances are for the centro or gallons, nor caes 110 Week com ny. The rece b e estimate c order quantity Caroline had gathered information on the costs of or dering and storing hospital supplies. For order costs, shees- timated that, on average, the purchasing account payables, and receiving personnel spent three hours processing a single purchase order. A single purchase order typically in- cluded four SKUs (.e., each SKU on a purchase order was called a line item). The average hospital storeroom's wage was $18.50 an hour; with employee benefits and associated overhead, the cost of one worker-hour came to $94. For inventory-holling costs, the university warehouse and hospital storeroom used 36,750 square feet of storage space. The university stored an average of $1.15 million in EXHIBIT 11.17 Hardy Hospital Aggregate Strike Disinfectant Weekly Demand as Measured by Hospital Requisitions Week Strike of obsolescence. When a department needed a regular stock item, that department generally ordered (requisi. tioned) the item. If the item was in stock, it would be delivered to the department by the next delivery date. When the university did not normally stock an item, individual hospital departments could special order them. Special order items were supposed to be those of an experi- mental nature or critical to patient health care, but not used frequently. Hospital departments requiring these special items bypassed the university purchasing system. Once a special order was placed the hospital department informed university purchasing so that it could eventually authorize payment on the vendor's imvoice. Hospital department coor dinators, doctors, or head nurses were responsible for initiat- ing and for authorizing special orders. In total, these special orders required a significant amount of work that took de partment coordinators and head nurses away from their du- ties. University purchasing kept no records on the hospital's special onder inventories or for the 215 secondary hospital stocking points such as exam rooms and moveable carts. One department's head nurse explained that many departments were afraid of running out of regular stock items. University purchasing didn't understand the im- portance and nature of hospital inventory, and they were slow to respond. The nurse cited the months-long period university purchasing process needed to place new items on the regular stock list, and the long lead times some- times involved in receiving orders requisitioned from the university's approved vendor list Because the university was a state institution, strict bidding and purchasing procedures had to be followed for both regular stock and special orders. For example, three written bids were required for an individual order of $2.00) or more. The processing of these bids often took up to 2 months. For orders between $500 and $1.999, three telephone bids were necessary. In these situations, pur chises could be made only from the lowest bidder. Orders under $500, or items on the state contract list, could be ordered over the phone, without any bids, State contract list items were those for which statewide needs had been combined and one contract left to cover all of them. 16 Total 180 Mean 1163 2.02 Standard Deviation Cycle Service Level * D ectant demandis quoted in gallons 97%