Question: A small hospital purchases units of red blood from a local blood collection agency. The hospital uses 2,000 units monthly and pays $236.72 per unit. The cost per order is $197.00. The cost of capital is 11% and the handling, insurance, and spoilage costs are 8% of the item cost.
1. Determine the EOQ and the total annual inventory holding cost.
2. The blood collection agency provides a $2,000 rebate/year for customers that order a minimum of 1,000 units for each order. Determine how much the hospital would save or lose each year if it followed the suppliers offer.
3. The hospital operates 365 days per year and the lead time to order blood is 10 days. Determine the reorder point and the average time between orders.
4. The hospital is concerned with fluctuating demand and would like to maintain safety stock with a 95% service level. If the historical standard deviation of daily demand is 36 units, what should the new reorder point be?