Question

Ascension Health dispenses 325,000 bottles of brand name pharmaceutical annually. The optimal safety stock (which is on hand initially) is 5,000 bottles. Each bottle costs the center $10, inventory carrying costs are 25%, and the cost of placing an order with its supplier is $200.

What is the economic order quantity? Format is x,xxx (number only)

What is the maximum inventory for this medication? Format is x,xxx.

How often must the center order (in days)? Format is xx days or x days.

How many orders of this pharmaceutical will need to be placed each year? Format is x or xx (number only)

Answer 1

Economic order quantity = square root of: [2(ordering costs)(demand rate)] / holding costs.

                                                                          = square root of: [2(200)(325,000)] / 10x25%

                                                                         = 7211.10 units

 

Maximum inventory for this medication = Reordering Level + Reorder Quantity – (Minimum Consumption x Reorder period)

                                                                        = 5000 + 7211.10

                                                                         = 12211.10

 

How often must the center order (in days) = 365 / no of orders

                                                                            = 365/ 45

                                                                           = 8.11 days

 

How many orders of this pharmaceutical will need to be placed each year = Annual demand / Economic order quantity 

                                                                                                                                     = 325,000 / 7211.10

                                                                                                                                     = 45 days

 

Economic order quantity 7211.10 units.