Case: Stock-up vs Stock-out: The Inventory Management Dilemma at a

mobile clinic

Time: November 2021

Key decision maker: Hartona, Management Trainee

Case Facts:

The scenario depicts the inventory management dilemma at The Star Clinic, a mobile medical
clinic. The clinic's resident doctor wishes that regularly prescribed medicines, particularly
Panadol, a brand of paracetamol (a pain reliever), be adequately supplied. Yet, the
procurement manager prefers to keep pharmaceutical holding costs to a minimum. To
achieve a very high level of patient service, the doctor demands that paracetamol be easily
available and dispensable at all times in the clinic. Patients should not have to wait three days
for the next shipment of supplies. On the contrary, the procurement manager takes a financial
approach and concentrates on the company's profit and loss statement.

Problems:

1. Customer (patient) dissatisfaction due to the non-availability of medicines.

2. Cost involved in the ordering and holding the inventory.
3. Conflict of interest between Medical and Administrative staff.

Problem Statement:

“How should the Organisation manage its Inventory while satisfying the customers and
incurring less cost?”

Criteria:

1. Reduced Cost and correct order time

2. Customer (patient) satisfaction
3. Ease of adaptability
4. Stock availability

Alternative:

1. Continuous review inventory system

2. Periodic review system
Evaluation of Alternatives:

1. Continuous review inventory system:

Calculating re-ordering point and re-ordering quantity, which involves information
like total cost, holding cost, and ordering cost that is already available or easily
computed, takes very little time and is simple to compute, which helps to improve
inventory management and service.
2. Periodic review system:
This requires data on orders placed at specific periods, which is readily available.
However, there is a possibility that more than the on-hand stock will be needed to
meet demand, and the waiting time will be longer because once the order is placed,
something can be done to replenish the stock once the time comes.

Recommendation:

The continuous review method is suitable for the case circumstance because inventory
management requires the daily demand of the products, which varies depending on the type.
Data on total cost, holding cost, and ordering cost are easily available and require less time.

Calculation:

 Annual Demand: 1,00,000 boxes

 Holding cost: $ 20
 Ordering cost: $ 10* $ 0.10 + 10%*10 = $ 1.1
 EOQ = √(2¿¿ 1,00,000∗20)/1 .1 ¿
 EOQ = 1907 boxes

 Total Holding cost = $ 1,048 ( Q2 )∗Ch

$ 1,048 ( )∗Co
D
 Total Ordering cost =
Q
 Total Cost = $ 2,096
 Total purchase cost = $ 10,00,00 ($10 * 1,00,000 box)
 Finance cost = $ 1,00,000 (10% of cost of medical supplies)
 Continuous (Q) Periodic (P)
97.5% 99% 97.5% 99%
Re-order point 2640 2923 - -
Safety stock 1503 1748
Order up to level - - 5486 5944
Average lead 1137 1137 3032 3033
time

Average stock (µ) = 379

Sigma = 442.7

Average with lead time 3 = 379 * 3 = 1137

Sigma with lead time 3 = 442 * Root 3 = 766.7

X = 3 * sigma * µ = 1.96*766.7*1137 = 2640