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chapter_29-final.ppt

CASE 29

CLARINDA COMMUNITY HOSPITAL

(Inventory Management)

Introduction

3 Key Learning Points (KLPs)

This case focuses on inventory management.
The primary goal of the case is to introduce you to the economic ordering quantity (EOQ) model, but it also contains issues related to:

Inventory classification

Inventory control

Inventory management systems

Introduction

The spreadsheet model for this case is relatively simple and focuses on the EOQ model.
It calculates the following data for two different suppliers:

EOQ

Average daily usage

Ordering, carrying, and total inventory costs

Reorder points

Spreadsheet Model

KLP 1: Inventory management

is important

Although this case focuses on low-cost items (forms used by the SICU), it illustrates that savings of hundreds of dollars, when applied to thousands of inventory items, can result in significant cost reduction.

KLP 2: The EOQ is relatively

insensitive to its input parameters

Total inventory costs are relatively flat when plotted against EOQ, so the EOQ can be thought of more as a range than as a point value.
Total inventory costs are most sensitive to ordering and carrying costs. Still, small errors in these estimates do not result in significant changes to the EOQ.

KLP 3: The EOQ model can be

applied when usage is seasonal

One way would be to develop seasonally adjusted annual rates and use them to calculate seasonally adjusted EOQs.
For example, if usage is different during the summer and winter periods, the EOQ model could be applied separately to each period and actual inventories would be run up or down during the transitional fall and spring seasons.
The result would be relatively large inventories during times of heavy usage and relatively small holdings in seasons when usage is light.