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CASE29

Case 29	Instructor Version				Copyright 2014 Health Administration Press
8/12/13
	CLARINDA COMMUNITY HOSPITAL
	Inventory Management
This case is designed to familiarize students with EOQ analysis and the ABC method of
inventory control.
The model calculates the economic ordering quantity (EOQ), inventory costs, and reorder points.
The analysis is based on two suppliers having different set-up costs, levels of safety stock, and
discounts.
The model consists of a complete base case analysis--no changes need to be made
to the existing MODEL-GENERATED DATA section. However, all values in the student
version INPUT DATA section have been replaced with zeros. Thus, students must determine
the appropriate input values and enter them into the model. These cells are colored red.
When this is done, any error cells will be corrected and the base case solution will appear.
Note that the model does not contain any risk analyses, so students will have to create
their own if required by the case. Furthermore, students must create their own graphics
(charts) as needed to present their results.
INPUT DATA:			KEY OUTPUT:
	Supplier	Supplier		Supplier	Supplier
	A	B		A	B
Annual usage	92	92	EOQ	24	30
Purchase price	$66	$60	Average daily usage	0.3	0.3
% Carrying cost	25.0%	25.0%	Orders per year	3.8	3.1
Delivery time (days)	1	3	Total inv costs:
Fixed cost per order	$50	$75	No dis, no ss	$390	$455
Days per year	360	360	No dis, w/ ss	$423	$545
Safety stock quantity	2	6	W/ dis, no ss		$696
Discount %	N/A	10.0%	W/ dis, w/ ss		$777
Discount quantity	N/A	92	Reorder point:
Order quantity	24	30	Without ss	1	1
			With ss	2	7
MODEL-GENERATED OUTPUT:
Without discount or safety stock:
		Supplier	Supplier
		A	B
EOQ		24.0	30.0
Total carrying costs		$198	$225
Total ordering costs		$192	$230
Total inventory costs		$390	$455
Reorder point		1	1
With safety stock but without discount:
		Supplier	Supplier
		A	B
Total carrying costs		$231	$315
Total ordering costs		$192	$230
Total inventory costs		$423	$545
Reorder point		2	7
With discount but without safety stock:
		Supplier	Supplier
		A	B
Total carrying costs			$621
Total ordering costs			$75
Total inventory costs			$696
Incremental inv. costs			$241
Total dollar discount			$552
Net discount savings			$311
With both discount and safety stock:
		Supplier	Supplier
		A	B
Total carrying costs			$702
Total ordering costs			$75
Total inventory costs			$777
Incremental inv. costs			$232
Total dollar discount			$552
Net discount savings			$320
					END

Page &P

Note: Rounding the EOQ to the nearest unit creates a rounding difference in total carrying costs and total ordering costs, and hence they are not identical at the EOQ ordering quantity.

Note: Only Supplier B is offering a discount, so this part of the model is not applicable to Supplier A.