Part 1

Deliverable Length: 500-600 words

Smitheford Pharmaceuticals wants to reduce its inventory costs. As a quality manager to Smitheford Pharmaceuticals, explain the meaning of lowering the water level to expose the rocks, on the diagram on this figure, as you would to your management team. How would you keep Smitheford Pharmaceuticals from immediately raising the inventory as soon as an outage occurs? Explain how each rock can cause problems in the production process and how you would help pharmaceuticals to improve processes and reduce inventory.

Reference

Gaither, N., & Frazier, G. (2002). Operations management (9th ed.). Mason, OH: South-Western.

Part 2

Deliverable Length: 750–1,000 words

As the production manager, you need to minimize both ordering and inventory costs. You need to provide a recommendation of the optimal order quantity of raw materials to your plant manager. Your objective is to determine the economic order quantity (EOQ). If the annual demand for Ultamyacin at Smitheford is 400,000 units, then the annual carrying cost rate is 15% of the cost of the unit. The product costs $48/unit to purchase, and the product ordering cost is $28.00.

In your report, discuss information based on the following questions:

• What is the basic EOQ?

• What is the TC (total cost) at the EOQ?

• How much would the TC increase if the order quantity must be 1,000 units?

• How is JIT (just-in-time) ordering methodology different from EOQ methodology?

Show all your calculations.

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