Joshua is running a pharmacy in Nigeria (where Naira is the local currency). His
ID: 388733 • Letter: J
Question
Joshua is running a pharmacy in Nigeria (where Naira is the local currency). His recent experience in the MicroMasters course motivated him to rethink how to reorder pharmaceuticals to replenish inventory. He recalls that he should consider the purchase cost, the order cost, and the holding cost. In the past, Joshua rigorously tracked these cost items. For Ibuprofen he knows that:
unit cost: c = 152 Naira/pack
demand: D = 690 packs/year
ordering cost: A = 1500 Naira/order
holding cost: rc = 52 Naira/pack*year
Joshua runs a second pharmacy on the other side of town. He has been ordering for each location individually from a wholesaler. He realizes that he can save some money by consolidating the two orders into one single order. The costs per pack for both pharmacies are exactly the same (use A, c and rc values from Part 1). The annual demand for Ibuprofen in the second pharmacy is 920 packs.
What is the consolidated optimal order quantity (in packs of Ibuprofen)?(Noted that the answer for unconsolidated one is 230.)
Round your answer to the nearest integer.
Explanation / Answer
Total demand, D = 690+920 = 1610 packs
Ordering cost, A = 1500 Naira / order
Holding cost = 52 Naira / pack.year
Optimal order quantity, Q = (2.D.A / r.c)1/2 = SQRT(2*1610*1500 / 52) = 304.8 or 305 packs
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