The "retail formulary" is a list of drugs that are stocked in every retail store for customer pick-up. The "mail-order fomulary" is a list of drugs that are stocked only at the distribution center and are mailed to the customers.

 

Carepharm wants you to make them a model to determine whether a new drug should be placed on the retail formulary or the mail-order formulary.

• If Carepharm centralizes a particular drug, all sales of that drug from all 25 retail stores are mailed to the customer instead of being picked up in store. This costs an additional $0.34 per unit sold, which is not passed on to the customers.
• The lead time for any drug is 10 days, the annual holding cost is 20%, and the desired CSL is 99%. The fixed cost is $100 per order.

In the following analysis, assume that the pharmacies are open 360 days per year, and assume that the correlation between any two retail outlets is 0. Also assume that each pharmacy orders EOQ quantities of each drug (and if the drug is on the mail order formulary, the distribution center orders EOQ quantities of the drug). Determine the total ordering and holding costs if the drug is stocked in each retail store versus mail-order. Don't forget to add the cost of mailing to customers if the drug is on the mail-order formulary.

Data for two sample drugs is given below. Use your model to determine whether each one should be on the retail formulary or the mail-order formulary.

Drug name	Celebrex	Toradol
Cost per unit	$10.00	$100.00
Average daily demand at each retail store	300	5
Standard deviation of daily demand at each pharmacy	50	4

NOTE: read the problem carefully. You are not being asked to aggregate the different drugs together. The question is for each drug individually, whether to aggregate the demand of 25 retail stores to mail order.

Question 7

If going with retail, what is the order quantity (Q) for each retail store for Celebrex?

Question 8

If going with retail, what is the total cost for each retail store for Celebrex?

Question 9

What is the total cost for going retail for all 25 stores for Celebrex?

Question 10

If going with mail order, what is the order quantity (Q) for Celebrex?

Question 11

What is the total cost for going mail order for Celebrex?

Question 12

If going with retail, what is the order quantity (Q) for each retail store for Toradol?

Question 13

If going with retail, what is the total cost for each retail store for Toradol?

Question 14

If going with mail order, what is the safety stock (SS) for Toradol?

Answer rating: 100% (QA)

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