Suppose a hospital uses a periodic review model to control inventory. During the

Question

Suppose a hospital uses a periodic review model to control inventory. During the past year, the mean daily demand for bandage BX-5 was 200 and the demand was normally distributed. The standard deviation of the daily demand was 10. The inventory level was reviewed once every 6 days. It takes 3 days to receive the deliveries of the bandage after an order is placed. Suppose the required “z” value is 1.88 to ensure a satisfactory service level of 97%. Then how many bandages should the hospital order each time? Find the closest value.

Explanation / Answer

Average Daily Demand = 200

Standard deviation of daily demand SR= 10

Standard deviation of demand during review period and replenishment leadtime

SRTLD = SQRT(Tr + L) * SR = 3 * 10 = 30

For a 97% service level z= 1.88 and

Safety Stock = z * SRTLD = 1.88 * 30 = 56.4 =57

Order upto Level = 200 * (9) + 57 = 1857

Average order quantity Q = 200 * 3 = 600 nos and cycle stock = 600/2 = 300 nos

Average Inventory = 600/2 + 57 = 357 nos

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