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Chapter 12

Q. 12.EX.3

FINDING THE OPTIMAL ORDER SIZE AT SHARP, INC.. Sharp, Inc., a company that markets painless hypodermic needles to hospitals, would like to reduce its inventory cost by determining the optimal number of hypodermic needles to obtain per order.
APPROACH \blacktriangleright The annual demand is 1,000 units; the setup or ordering cost is $10 per order; and the holding cost per unit per year is $.50.

Step-by-Step

Verified Solution

SOLUTION \blacktriangleright Using these figures, we can calculate the optimal number of units per order:

Q^* = \sqrt{\frac{2DS}{H}}

Q^* = \sqrt{\frac{2(1,000)(10)}{0.50}} = \sqrt{40,000} = 200 units

INSIGHT \blacktriangleright Sharp, Inc., now knows how many needles to order per order. The firm also has a basis for determining ordering and holding costs for this item, as well as the number of orders to be processed by the receiving and inventory departments.

LEARNING EXERCISE \blacktriangleright If D increases to 1,200 units, what is the new Q^*? [Answer: Q^* = 219 units.]

RELATED PROBLEMS \blacktriangleright 12.7, 12.8, 12.9, 12.10, 12.11, 12.14, 12.15, 12.17, 12.29 (12.31, 12.32, 12.33a, 12.35a are available in MyOMLab)
EXCEL OM Data File Ch12Ex3.xls can be found in MyOMLab.
ACTIVE MODEL 12.1 This example is further illustrated in Active Model 12.1 in MyOMLab.