Compute the total order and inventory-holding costs for a fixed-quantity system (FQS) and compare to the current order Qs.

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EXHIBIT 11.16 Hardy Hospital Strike Disinfectant Data* Cost per Case $94.20 Order Lead Time 2 weeks Strike Disinfectant Beginning SKU Balance Receipt Ending Balance Case Size 4 gallons Week Week Week 200 110 nventory balances are for the central hopital storeroom only. The recipe is a reasonable estimate of the current order query (0) sons, not cases. Caroline had gathered information on the costs of or- dering and storing hospital supplies. For order costs, she es- timated thal, 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 (i.e., cach 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 $24. For inventory-holcling costs, the university warehouse and hospital storeroom used 36,750 square feet of storage space. The university stored an average of $4.15 million in EXHIBIT 11.17 Hardy Hospital Aggregate Strike Disinfectant Weekly Demand as Measured by Hospital Requisitions Week Strike of obsolescence. When a department necded a regular stock item, that department generally ordered (requisi- Soned) 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, Endividual hospital departments could special-order them. Special-order items were supposed to be those of an experi shenital nature or critical to patient health care, but not used frequently. Hospital departments requiring these special tems 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 invoice. Hospital department coor dinators, doctors, or head nurses were responsible for initiat- ing and/or 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 clu- ties. University purchasing kept no records on the hospital's special-order inventories or for the 215 secondary hospital stocking points such as exam rooms and moveable carts. One department's bead 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 tuniversity 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 $2,000 or more. The processing of these bids often took up to 2 months. For orders between $800 and $1,999, three telephone bids were necessary. In these situations, pur chases could be made only from the lowest bidder. Orders under $800, 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. OEN Total 186 Mean 11.83 Standard Deviation 8.02 Cycle Service Level 97% Strike Disinfectant demnand is quoted in gallons CHAPTER 11: Managing inventories in Supply Chains 239 EXHIBIT 11.16 Hardy Hospital Strike Disinfectant Data per Case Order Lead Time Case Size Strike Disinfectant allons Beginning SKU Balance 96 Week Receipt Wook Ending Balance Wook "These inventory balances are for the central hospitalstroom only. The recep Ingallons not cases 200 16. t ie estimate of the order quantity Caroline had gathered information on the costs of or dering and storing hospital supplies. For order costs, she es- 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 (ie., 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-bour came to $24. For inventory-holding costs, the university warehouse and hospital storeroom used 36,750 square feet of storage space. The university stored an average of $4.15 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 invoice. Hospital department coor- dinators, doctors, or head nurses were responsible for initiat- ing and/or 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-order 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 hickling 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 82,000 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 chases 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. 27 Total 186 Mean 11.63 Standard Deviation 802 Cycle Service Level ke Disinfectant demand is quoted in gations CHAPTER 11: Managing Inventories in Supply Chains 97% 239