case study

                                  You Are the Consultants 

Case #1 

 To ensure that the correct size of heart valve is available for heart surgery, Heart Plus, the make of the valves employs salespeople to place and maintain inventories in hospitals in its market.  After a valve is used in surgery, Heart Plus, bills the patient’s insurance company and credits the sales person with the sale.  Each sales person earns a commission based on a percentage of revenue of the sales in their territory. 

Because Heart Plus does not get paid until it sells its valve, it must bear the cost of holding inventory calculated as the cost of capital (assumed 12%) time the wholesale cost of the valves placed in the hospital.

Problem:

Heart Plus faces a cost of holding inventory that is higher than its competitors.  The salespeople are clearly overstocking hospitals in their territory.  Considering that Heart Plus does not want to lose good sales people how do you fix the problem?