Reducing Inventory Levels in the WKZ by Proposing a Revised Inventory Model

This thesis addresses a problem that the WKZ, a children's hospital, is facing during a major renovation and construction project. In the project, decentralized warehouses of multiple departments are moved to one central warehouse. There is less space for this warehouse than currently necessary, meaning that a reduction in inventory levels is needed. We achieve this by providing the hospital with a revised quantitative inventory model for computing optimal order quantities and reorder points for the products in the warehouse. First, we categorize products on their frequency and variance of demand into four categories: smooth, erratic, intermittent and lumpy. We propose a different technique of modelling demand to compute a reorder point for each category. We also suggest two different ways of computing an order quantity. We find that a reduction in average inventory levels of 25% is possible, whilst also saving on inventory costs and number of orders. We recommend WKZ to apply this model to the new warehouse, and to gather more accurate demand data to further enhance the model's effectiveness.