An Inventory Problem
A pharmaceutical supply firm inventories cases of a perishable drug for
which demand is uncertain, as represented by 36 months or historical
data. The average demand has been 5 cases per month, so this is the
number the firm currently stocks.
The operating cost of maintaining the inventory has two components:
- If at the end of the month the demand has been less than the number
stocked, the excess cases will have expired and must be destroyed at a
loss of $50 per unit.
- If the demand is greater than the number stocked, the additional
units must be air freighted at additional cost. The air freight rate
fluctuates depending on the capacity of the carrier. Although good
records have not been kept, the shipping clerk indicates that it is most
likely $150 per unit.
This situation is modeled in INVNTORY.xls, which you should open now.
Try plugging some of the numbers from the demand column into cell A2 to
see how the total cost is affected.
In chapter 45 , we will see how interactive simulation can shed some light
on this problem using the same model