ClearEyes Clinic orders two types of premium intraocular lenses (IOLs) from one supplier.
(1) Toric IOLs correct nearsightedness or farsightedness and astigmatism. These lenses have alignment markings on the peripheral part of the lens that enable the surgeon to adjust the orientation of the IOL inside the eye.
(2) Accommodating IOLs greatly reduce their need for reading glasses or computer glasses after cataract surgery, while providing exceptionally clear distance vision.
The following table presents some relevant facts associated with the inventory management of these two products:
Annual Demand (48 weeks)
Cost per unit
Annual holding cost as % unit cost (includes financial and loss of inventory)
Every Two weeks
ClearEyes Clinic places orders to the supplier weekly for Toric IOLs and every two weeks for Accomodating IOLs based on the patients that are scheduled for surgery and the requirements for premium lenses.
1. Calculate an Economic Order Quantity (EOQ) to be used for Toric IOLs. Should ClearEyes Clinic change the frequency of orders to their supplier? Please explain. (6 POINTS)
H = 10/100*1000 = $100 per unit per year
EOQ = √2*1200*150/100 = 60 units
Yes, they should change their frequency of orders to 2.4 weeks, or to be approximately 2 days before inventory runs out. (1200 / 48 = 25 units per week; 60 / 25 = 2.4)
2. How many orders will be placed over a full year if they adopt EOQ for Toric IOLs? (4 POINTS)
If Toric IOL orders occurred every 2.4 weeks as called upon by EOQ, then 20 orders must take place within 48 weeks to satisfy the 1200 units annual demand
1200 units / 60 units = 20 orders; 20 orders*2.4 weeks = 48 weeks of annual demand
3. Should ClearEyes Clinic carry any safety stock of premium intraocular lenses? Why or why not? (4 POINTS)