The Compass Hospital and Health Center (CHHC) inventories hospital gloves for use in surgery and patient care. The hospital, which operates seven days a week, 52 weeks per year (365 days a year), can consume gloves at the rate of 200 pairs of gloves per day. (Gloves can only be used for one task and must then be discarded because of the risk of contamination.) The hospital uses a continuous inventory system in which gloves are kept in small supply closets spread throughout the facility. When needed, employees go to the nearest supply closet and retrieve a pair of gloves. The gloves’ bar code is simply swiped past a bar code reader along with the bar code of the account of the patient to whom the item is to be charged. The ordering cost for an order of gloves is $200. The cost of holding (carrying) gloves in storage closets is $3 per pair per year. The lead time for receipt of the order of gloves, once the order is transmitted to the supplier, is 10 days without making the order an express shipment.
7.Suppose that ordinarily CHHC is charged $5 per pair of gloves by the glove supplier for orders of less than 4000 pairs. For orders between 4000 and 4999 pairs of gloves, CHHC receives a discount of one dollar, resulting in a $4 charge per pair. For orders of 5000 or more pairs of gloves, the price is $2.50 per pair. Assuming CHHC has plenty of excess storage capacity, using the EOQ model, at what order quantity would CHHC’s ordering, carrying, and annual purchase costs are minimized? (Hint: Total Cost = Ordering Cost + Carrying Cost + Purchase Cost)
8. (6 points) Other than applying the EOQ model when ordering gloves, which factors (discuss at least three) should CHHC consider when making a decision about glove inventories?
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