See the following data on baby blanket inventory planning :
Demand = 60 blankets/week
Delivery lead time = 2 weeks (delivery of blankets, not the babies!)
Annual holding cost per unit = 25% of item cost
Ordering cost = $10.00/order
Cost of one blanket = $8.00
Standard deviation in weekly demand = 5 blankets
Standard deviation in 2 week demand = 7 blankets
Standard deviation in 3 week demand = 8.7 blankets
Standard deviation in 4 week demand = 10 blankets
Standard deviation in 5 week demand = 11.2 blankets
Desired cycle service level = 96%
The hospital is open 52 weeks per year.
a) What is the economic order quantity (EOQ) for baby blankets? Blankets are currently ordered in quantities of 250. How much would the maternity ward save in total annual costs by changing to the EOQ?
b) What is the difference in safety stock quantities if blankets are managed using a fixed-time period model (P model) versus a Fixed-order quantity (Q model)?
Table: Normal Demand Percentages
