Case Study: Demand Forecast, Inventory Management and Capacity design at Pharma.Tech

Pharma.Tech is a company specialized in manufacturing and selling paramedical equipment varying from needles to medical uniforms worn by medical or laboratory staff. Currently and under the effect of the coronavirus outbreak, the company is planning to adjust its annual production of medical face masks to the drastically changed market demand. While the World Health Organization is recommending everyone to wear medical-grade masks in public, such masks are difficult and expensive to make. Therefore, the company should accurately predict the total market demand of these type of masks. Moreover, the prices for such items are highly regulated and knowing that the storage cost of the medical face masks is about 60 to 80% from their total cost, the company should manage its inventory while keeping its total inventory cost at minimum. As the operations manager of Parma.Tech you are responsible for providing a plan to accurately forecast the future demand of medical face masks, then manage optimally the company stock level and propose direction regarding the company capacity design in order to improve its productivity.

Part II: Inventory Management

In the following, you need to manage the stock level of the company with respect to some costs that your team already estimated. The team report states that for one order made, the company should pay 20 AED as clerical costs and 30 AED as packing costs. It is stated also that the company spends 10 AED to produce one mask and that 80% of that corresponds to the cost of keeping one mask in stock for one year. With this information at hand you will manage to meet the annual demand for year 2021 and which corresponds to the demand forecast for period 15.

Questions:

1- Using the EOQ model, Determine the optimal order quantity.

2- How many orders will be placed per year using the optimal order quantity.

3- Determine the ordering, holding, and total inventory costs for the optimal order quantity.