Caroline Highgrove, Hardy Hospital’s director of materials management, glanced at the papers spread across her desk. She wondered where the week had gone. On Monday, the director of university operations, Drew Paris, had asked Caroline to look into the purchasing and supplies systems for the hospital. Drew specifically wanted Caroline to evaluate the current materials-management system, identify ways to reduce costs, and recommend a final plan of action. Drew explained that the university was under pressure to cut expenses, and hospital inventory did not seem to be under control.
As Caroline reviewed her notes, she was struck by the variations in order sizes and order frequencies for the hospital’s stock-keeping units (SKUs). For some SKUs, inventory ran out before new orders came in, whereas for other SKUs, excessively high stock levels were being carried. The university and hospital’s computerized materials-management system was about a decade old and generally worked well; however, employees often ignored or did not update key information.
Thus, data integrity was a major problem in this information system.
Hospital and university supply orders were classified as either regular stock or special order. The hospital was the originator of almost all special orders. Regular stock items, such as bed sheets, uniforms, and syringes, were characterized by their long-standing and frequent use throughout the university and hospital, and by a low risk of obsolescence.
When a department needed a regular stock item, that department generally ordered (requisitioned) the item.
If the item was in stock, it would be delivered to the department by the next delivery date.

Case Questions for Discussion:
1. What are good estimates of order cost and
inventory-holding cost? (State all assumptions and
show all computations.)

2. What is the EOQ and reorder point with safety
stock for Strike Disinfectant given your answer to
question 1?
3. 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?