Littlefield Laboratories, LLC (LL) provides an integrated genetic test called MaterniT 21 PLUS forexpected parents in Northern California. LL charges its customers a premium price of $1,900 per test and promises to return the result within 24 hours after receiving the order; otherwise a rebate will be provided. LL runs 24x7 and customer orders for the test come in to the lab with blood samples on a continuous basis. Demand for the test is relatively stable at an average of 3,000 tests per month, with an estimated standard deviation of 100 tests for the weekly demand. Each test requires an advanced testing kit that can be purchased from a sole supplier at a wholesale price of $600 each. LL can purchase the testing kits from the supplier in a batch. The supplier charges a fixed setup cost (including shipping) of $6,000 for each batch LL orders, regardless of the size of the batch. It will take exactly 7 days for the supplier to deliver the batch to LL after LL places the order. If LL runs out of inventory for less than a week, the backlog cost is estimated to be $156 per unit. As soon as the batch is delivered, LL pays the supplier out of is operational cash account, which generates interest for LL on a compound annual growth rate
(CAGR) of 8%. Test kits are very small parts that do not require any physical resources (e. g., extra space or climate control) to hold.
1. Which of the following are necessary inventory control decisions LL has to make?
i. Determining how many testing machines to purchase.
ii. Determining how many units of testing kits to order in a batch.
iii. Determining how many operators to staff in each shift.
iv. Determining the reorder point that triggers the testing kit replenishment order.
v Determining how often to order testing kits.
vi. Determining what price promotions can be offered to customers.
2. Which of the following are appropriate strategies for making the inventory decisions.
i. Use the EOQ model to determine how many testing kit units to order each time.
ii. Use the EOQ model to determine how often to place testing kit orders.
iii Use the EOQ model to determine the reorder point to trigger the replenishment order in
order to keep a good amount of testing kits on hand during the 7‐day supplier lead time.
iv. Use the EOQ model to determine how many operators to staff in each shift.
v. Use the order-up-to model to determine the optimal reorder point.
vi. Use the order-up-to model to determine how many testing machines to purchase.