business Problems
Part A.
A small hospital purchases units of red blood from a local blood collection agency. The hospital uses 2,000 units monthly and pays $236.72 per unit. The cost per order
is $197.00. The cost of capital is 11% and the handling, insurance, and spoilage costs are 8% of the item cost.
1. Determine the EOQ and the total annual inventory holding cost.
2. The blood collection agency provides a $2,000 rebate/year for customers that order a
minimum of 1,000 units for each order. Determine how much the hospital would save or
lose each year if it followed the SUPPLIERS offer.
3. The hospital operates 365 days per year and the lead time to order blood is 10 days.
Determine the reorder point and the average time between orders.
4. The hospital is concerned with fluctuating demand and would like to maintain safety
stock with a 95% service level. If the historical standard deviation of daily demand is 36
units, what should the new reorder point be?
Part B.
David Christopher is an orthopedic surgeon who specializes in three types of surgery—hip, knee, and ankle replacements. The surgery mix is 40% hip replacement, 50%
knee replacement, and 10% ankle replacement. Partial bills of materials for each type of surgery are shown in the following information.
Hip Replacement Knee Replacement Ankle Replacement
Surgical kits #203 & #428 Surgical kit #203 Surgical kit #108
Hip Part Pkg #A Knee Part Pkg #V Ankle Part Pkg #P
Patient’s blood type–6 pints Patient’s blood type–4 pints Patient’s blood type–3 pints
Given that Dr. Christopher is scheduled to do five hip replacements, three knee replacements, and one ankle replacement next week, how many surgical kits and part
packages of each type should the hospital have available next week?
How many total pints of blood are needed next week?
Design a “mistake-proof” system to ensure each patient gets correct blood type.
What are the implications of a shortage (stock-out) of a surgical kit or part package discovered several hours before the operation? What if a part package has a
missing part that is not discovered until surgery begins?
