CHAPTER I0 Inventory poticy

Decisions
-r.

tory and Kansas City's from the current center. Consolidations like this minimi ze the
investment needed.
Another concern with MDC consolidation is:What would happen to the warehousing cost? Currently, the finance department allocates a flat rate of
$O.tO per lamp
in inventory to warehousing cost. This rate covers the overhead of the distribuiion centers and the direct labor needed to handle product. If the number of MDCs is reduced,
there would also be a reduction in the total warehousing costs for the entire system.
However, the MDC selected as a consolidation site would have higher costs than before consolidation because of holding more lamps. The selected site is the one currenly
having the greatest number of shipments among the consolidated group.
Options like the LOC and MDC consolidation have been bro-ughi up before, but
they have always been discarded because of the additional costs invo-lved. Upper
management has had a feeling that transportation costs would increase. However,
an indepth analysis, taking inventory reduction into account, might yield a different answer.
The new focus on inventory reduction provides u.t opport.rniiy to question the
status
quo of the distribution system. At $0.9g2 per lamp inventory uilu", u 20 p"r""nt
inven_
on would yield
lar improvement in cash flow. However, any
ruction project
art of the MDC consolidation would not be
ed on a two-ye
is. It would be acceptable to management to
consolidate demand at the existing MDCs if the change can be economically
Jupported
and customer service is maintained at least at curreni levels. Sue and Bryan
know they
need to find a solution that will meet both the customer's expectationi and
the business goals.

QUESTIONS
1. Evaluate the company's current inventory management procedures.

2. Should establishing the LOC be pursued?

3. Does reducing the number of st_ocking locations have the potential for reducing sys-

tem inventbries by 20 percent? Is there enough information available to make gooO

inventory reduction decision?
4. How might customer service be affected by the proposed inventory reduction?

Amerrcan Re? CrodJ: Bl^oo? SerarteJ22

Dr. Amy Croxton, the medical director of American Red Cross's regional blood
center
for the northern ohio region located in Cleveland, was in low spirits. Following
March,
in which severe outdating23 of blood products had taken place, she was facirig an ex22

This case was prepared with the assistance of Manish Batra.

when a blood product, due to age!, is no longer usea te for its intended purpose
and is de1]9:jo:,lllt"":_:rs

crareo out oI oate.

382

PART

IY InventorY StrategY

treme shortage of blood in April. The substantial outdating of blood products in March
the
and their severe shortage in April had proved very costly. She reflected upon
compo'
blood
American Red Cross's stated mission "of providing the highest quality
at the lowest possible cosf." She wondered if som
nents
, LCt LLJ qL

manasement program

would

for the American Red Uross

S.

INTRODUCTION
ARC is a nonprofit organization drawing

45 percent of the blood supply in the United

Association
States. The remainder is drawn by independent members of the American

of Blood Banks (35 percent), by members of the Council of Community Blood Banks
(15 percent), and by commercial blood banks (5 percent). Each year more than 2 million^hospitalized Americans depend upon the timely availability of the right type of
blood products at over 6,000 hbspital blood banks in the United States. If the right
postblood products are not available when required, then medical complications or
hospitalof
days
extra
to
ponements of surgical procedures can result, which translates
ization and expense.
Human blood is a perishable product.It is collected in units of one pint per donor
at collection sites suchas churches, factories, schools, and regional blood centers, and
after a series of tests, it is ready to be processed and distributed to the various hospital
blood banks in the region (see Figure l).
There are eight major blood types, and their frequencies in the U'S' population
vary from O+ (39 percent) to AB- (0.5 p".""nt) (see Table 1). Regional blood banks
in
attempt to maintain inventories of some or all of the eight different types of blood
outdatexcessive
orderio meet the variable daily demand for blood without incurring
ing. The factors that affect the quantities to be maintained in inventory are as follows:
FIGURE I Collection, Testing, and Distribution of Blood

titltl
Blood is collected at a blood mobile unit based on
the requirement of blood in the various regional
hospitals.
Then it undergoes a series of typing and screening
tests and may be separated into components'
It is then shipped to a Hospital Blood Bank to

satisfy demands for transfusions to patients'

':;

.jq

''s

CHAPTER

39%

34Yo

l0

Inventory Policy Decisions

1,5%

0.5o/o

100%

c Demand. The number of blood units (1 unit = 1 pint) of any one type that

are required by the various hospital blood banks'

occurrence when the demand exceeds the number of units

Shortige. An

of

blood in inventorY.
Shortage rate. The long-term fraction (or percentage) of days on which a
shortage occursl that is, shortage rate = number of days a shortage sssg15 + total number of daYs.
o Outdate. A blood unit discarded because of exceeding its shelf life (e.g., 35
days for Whole blood).
o Outda;ie rate. The ratio of mean number of blood units outdated to mean
number of blood units collected; that is, outdate rate = mean number of units
outdated + mean number of units collected.

When the shortage rate is decreased, the outdate rate is increased, and vice versa.
The relationship between shortage and outdating is shown in Figure 2.The optimum
inventory level for a specific blood product is found as a compromise between the
shortage rate and the outdate rate. Shortage cost-per-unit equals the cost of acquiring
one u.rit (.I) from another source, and outdating cost-per-unit equals the cost of processing one unit (P). The number of units that can be processed and outdated to cover
the ac[uisition cost of one unit equals I + P.Forexample, cost of acquiring one platelet
unit from another source is $30, and its processing cost is $3. Since the ratio of 1to P is
just
10 to L, 10 platelets could have been processed and outdated for the cost acquiring
one unit from another source.
Once delivered to a hospital, a unit is stored, under the appropriate storage conditions, in the hospital's inventory. It is available to satisfy physicians' requests for units
to be put on reiserve for specific patients. These requests arrive randomly during the

jJ

384

PART

IY Inventory

Strategy

course of each day, each for a variable number of units. Upon arrival of a request, the
specified number of units is selected from inventory according to a FIFO (first in, first
out) selection rule and put on reserve. The units demanded but not used are returned
to inventory the next day.
A hospital is concerned with maintaining a sufficient blood inventory to meet the
variable daily demand most of the time without outdating a large fraction of the perishable blood. In trying to reach a working compromise between the anticipated outdate rate and shortage rate, most hospitals exercise some judgment of their own in determining the quantities to order from ARC. As a result, the blood distribution systems
that are commonly found to be in effect can be characterized by the hospitals requesting quantities of blood and ARC trying to fulfill these requests as they occur. This
mode of operation results in a high degree of uncertainty in the availability of blood,
and in inefficiencies in utilizing blood resources, personnel, and facilities. To rerhedy
this sitg-ation, alternative methods are employed, includingcentralized management of
blood, especially of the rare types, rather than management by individual hospitals;
prescheduled deliveries; and a distribution system in which blood is "rotated" among
the hospitals.
The timely availability and careful preservation of blood are crucial to human life.
Due to its perishatile nature, blood bank administrators find blood inventory management a pressing problem. Shortages of blood often force blood banks to adopt emergency procurement procedures that result in high costs. Additional cost resulting from
the adverse effects of shortages on patients is difficult to measure. Blood that is outdated causes blood centers to incur losses due to costs involved in procuring, processing, and storing blood.

BLOOD SOURpING: WHOLE BLOOD

AND WHOLE BLOOD COMPONENTS
Whole blood is the blood drawn directly from a donor, which is then separated into
various components: red blood cells, plasma, platelets, cryo, etc.Whole blood is used directly for transfusion only in pediatric cases. In fact, only about 1 percent of total transfusions use whole blood.
Red blood cells are prepared by centrifugal or gravitational separation of the red
cells from the plasma. Red blood cells are used for patients with a symptomatic deficit
of oxygen-carrying capacity. They are also used for exchange transfusion and to help
restore blood volume following significant hemorrhage.
Plasma is the liquid part of the blood.It consists of the anticoagulated clear portion of blood that is separated by centrifugation or sedimentation no later than five
days after the expiration date of the whole blood.It is used for patients with coagula-

tion factors deficiency (deficiency in proteins that help in clotting of blood). Plasma is
stored frozen, while liquid plasma is refrigerated. Fresh frozen plasma is the plasma
that is separated and frozen within 10 hours after collection of whole blood. It contains
plasma proteins including all coagulation factors.
Platelets are a concentrate separated from a single unit of whole blood and suspended in a small amount of the original plasma.These platelets are also known as random platelers. They are used for patients with bleeding problems and for patients re-

CHAPTER I0 Inventory policy Decisions

quiring platelet transfusion such as in some cancer patients. Another type of platelets
calTed pheresis platelets are also extracted from the human body.
Cryo (or cryoprecipitate) is prepared by thawing fresh frozen plasma between 1oC
and 6oC and recovering the precipitate. The insoluble precipitate ii refrozen. It is used
for treatment of hemophilia and in the control of bleeding.
The above whole blood components are routinely extracted from the whole blood
through appropriate procedures, which involve centrifuging, or spinning, the blood.
The process used to extract various components producti from whole blood is shown
in Figure 3.
The first spin should be completed within 8 hours and the second within 10 hours
after drawing the blood. All of these components are perishable, with their lifetimes
varying from five days (platelets) to one year (plasma and cryo). The lifetimes of the
various components of blood are given in Table 2.
Pheresis platelets have a lifetime of five days and serve the same purpo se as rando^m plateleh,9o. ln fact, they are a better product than random platelets. Tiansfusion
of one unit of pheresis platelets is equivalent to transfusing iix units of random
platelets. As a result, pheresis platelets required for a transfusion come from the
same
don
are
wnside, pheresis platelets are more expen_
sive
Fro
ous blood components in Table 3, one unit
of p
lets
its equivalent six units of random platelets
are priced at $264. As a result of this trade-off between cost of production and
iafety of
use, pheresis platelets compete with random platelets. Deciding inventory
levels for
these two competing products, each with a shoit lifetime of five days, is a ciitical problemfaced by the regional blood banks.

it

ll

It

Thaw
Fresh

frozen
plasma

Tubes for

bnd
freeze
Fresh

rozen
plasma
f

testing

Lifetime

Product

Random platelets

5 days

Rqndom platelets

Pheresis platelets

5 days
35 days

Pheresis platelets

Whole blood
Red cells

Cryo
Fresh frozen plasma

42 days
1 year
1 year

Whole blood
Red cells
Cryo
Fresh frozen plasma

Price
$ 44lunit
381
69
64

an

1I

26

386

PART

IY Inventory

Strategy

A SUPPLY-DRIVEN IN\'ENTORY SYSTEM

Collecting blood for the region is one of the regional center's most important functions. The collections for the regional center come from three sources: (1) scheduled
visits to organizations where donors have already signed up, (2) walk-in donors at the
center's donor facilities, and (3) invited donors (or donor groups) who respond to
emergency calls for blood. Out of these sources, the biggest portion of the center's supply comes from scheduled visits to schools, factories, churches, and the like. Collection
sites are selected from a few months to up to ayear in advance of a visit. Final scheduling must be done at least three to four weeks in advance. These long lead times and
the resulting uncertainty make it difficult to know the "appropriate" amount of blood
needed at the time of collection. Since donors are volunteers and are not turned away,
blood is collected from all qualified donors that arrive at a site. The number of collection sites is not easily changed with demand requirements since they too are volunteer
in nature. In addition, the number of sites available and the quantities collected vary
throufhout the year. Often demand for blood is at its highest, as in the suminertime
due to high accident rates, when the fewest sites are available (schools are in recess and
factories are closed for vacation).The result can be substantial mismatches between
supply and demand rvith little opportunity to adjust supply. Scheduled collections are
not easily adjusted to reduce supply, and, when demand exceeds supply, emergency
calls are made to donors to increase supply. Both are undesirable.
The various elements that affect the overall planning of this supply-driven inventory system are shown in Figure 4. All stages must be synchronized so that costs are
controlled, and'the need for blood is met.
An important aspect of uncertainty in the collection process comes from the fact
that the center schedules collections from donors'whose blood type is known only after the blood unit has been collected and typed. This means that the final result of the
blood drive, in terms of units collected for each blood type, can only be estimated, even
if the exact number of donors is known beforehand. Even this knowledge is generally
not possible, since the number of actual donors is usually less than the number of people who originally signed up. Approximately lL percent of the people who signed up
are not allowed to donate blood on that day and are deferred. This may happen because they are anemic, unhealthy, have practiced risky behavior, have abnormal blood
pressure, or have donated blood within the last 56 days-

DEMOGRAPHICS OF BLOOD DONORS

Only about 5 percent of the total U.S. population donates blood every year. Twenty
percent of these blood donors are first-time donors, while the rest are repeat donors.
The lower age limit to be able to donate blood is 17 years, and there is no upper age
limit. Average age of a blood donor is around 35 years. Fifty-two percent of the blood
donors are male and the rest female. Average number of donations per year per donor
is 1.9.Around 60 percent of the blood donors sign up to be V.I.P. donors (commit to do-

CHAPTER L0 Inventory Policy Decisions

I

nd

387

ustry/Busi ness/

Government
24%

Hospita

5%

High schools
11%

Universities/
Colleges

Community:
general
41%

5%

Community: group
14%

FIGURE

Blood Donor Groups

nate blood at least four times a year). The average number of donations per year per
V.I.P' donor is2.9, a number less tharr 4, since not all of the V.LP. donori keen their

commitment.
A majority of the donors come from a community group. The rest of the donors
come from high schools, universities or colleges, hospitals, industrial, business, and governmental organizations. Figure 5 gives a proportion of the various blood donor groups
based on 203,308 units collected by the regional blood center over one year.

A COMPLEX DISTRIBUTION PROBLEM

The complexity of the blood distribution problem is primarily due to its perishable
characteristic, the uncertainty involved in its availability to the regional Ulobd center,
and the variable demand for it at each of the hospital blood banks. The situation is
complicated by the large variation in the size of the hospital blood banks supplied, the
incidence of the different blood groups, the requirements for whole blood and its various components at individual hospitals, and competition from other blood banks.
Because it is ARC's policy for blood to be derived from volunteer donors, its availability is uncertain and is a function of a number of factors that cannot be controlled by
the regional blood center, for example, public perception of blood industry and fear of
acquiring AIDS. The demand and usage of blood at hospital blood banks is also uncertain and varies from day to day and between hospital facilities. The hospital blood
banks within a region may range from those transfusing a few hundred units per year
to those transfusing tens of thousands of unrts per year.

A GENERAL APPROACH TO BLOOD INVENTORY MANAGEMENT

The transfusion services throughout the nation are charact erized by diversity. Each regional blood center has independently evolved its own philosophiei and tectrniques for

blood distribution. Each region strives for "self-suffi-iency" in supplying the blood
needs of the hospitals in its region from donors who also reside ln approximately
the
same area' Because of these factors, it is essential that any strategy Owised for inventory management be defensible from the point of view of both the regional blood cen-

388

PART

lY

Inventory Strategy

ter and each of the wide range of hospital blood banks that it serves. Furthermore, any
strategy that involves interactions between regional blood centers must provide for
clearly defined benefits for all participants. In addition, it is desirable that the implemented strategy be characterized by two management concepts: rotation of blood
products between hospital blood banks and prescheduled deliveries to the hospital
blood banks.
In the case of small-usage hospital blood banks (which, in the aggtegate, accounts
for the largest part of the overall blood usage), any strategy that allocates blood products to be retained until transfused or outdated will result in low utilization. Consequently, some form of blood "rotation" is required whereby freshly processed blood is
sent to hospital blood banks, from which it may be returned, some time later, for redistribution according to the regional strategy. It is also desirable that a significant portion
of the periodic deliveries to the hospital blood banks be prescheduled.This way the uncertainty of supply faced by the hospital blood banks is reduced, with a resulting improvement in the planning of operations and the utilization of their resources.
Outdating of blood is undesirable and ARC tries hard to avoid it. The uncertainties in supply and demand can result in too much blood that exceeds its acceptable use
date. This usually occurs for specific blood types. That is, type O+ blood may be in short
supply while type AB+ has excess inventory and is likely to be outdated. There is some
opportunity at the time blood is collected to convert it into derivative products, considering different levels of anticipated product demand and the amount of product inventory on hand. However, outdating still can occur. When it does, there are several
options available as the expiration date approaches. First, certain products can be converted into other ones with a longer shelf life;for example, whole blood may be converted into plasma. Second, the blood products may be sold to other regions of the
American Red Cross, especially those that have chronic blood supply deficits. Third,
some, but not all, products may be sold to research laboratories. Fourth, they may be
put on sale. Selling products outside of the local region generally results in less revenue
for the products than if they were used to meet local demand.

AMERICAN RED CROSS'S REGIONAL BLOOD CENTERAT

CLEVELAND, OHIO
American Red Cross's regional blood center at Cleveland supplies blood components
to more than 60 hospitals in the northern Ohio region. It supplies more than 200,000
units of red blood cells per year, almost 40 percent of which is consumed by the six
largest hospitals (see Table 4). The regional center decides on what the inventory levels
of the hospitals should be, based on their past data of demand and usage. There are
three options available for any hospital dealing with ARC.

1.

The hospital rdceives full service from ARC; that is, ARC delivOption
ers the fresh blood products to the hospital once every week and takes back the
oldeh units that are near their expiration date. ARC decides the inventory levels for the hospital, based on the past usage, and bears the risk of outdating. This
option is the one chosen by the smaller hospitals (transfusing a few hundred
units of blood per year).
Option 2. The hospital decides the inventoiy levels, based on past usage,and
bears the risk of outdating. The hospital gets a 5 percent credit at the end of the

CHAPTER 10 Inventory Policv Decisions

Hospitals

A
B
C

D
E

Red Blood Cells

30,000 units
14,500

15.00%
7.25

10,000
9,000
8,500

5.00
4.50
4.25

F
Others

8,000

4.00

120,000

60.00

Total

200.000 units

100.00%

year if the total usage in that year exceeds the usage in the previous year.
This option is typically chosen by the intermediate hospitals (transfusing anywhere from a few hundred to a couple of thousand units of blood per year).
Option 3, The hospital has a "standing order," or a contract for a predetermined number of units of each blood component, to be delivered to it every day.
This predetermined number of units is adjusted quarterly, based on the past usage. The hospital receives a 5 percent discount on every unit of blood ordered. This option is the one chosen by the larger hospitals (trhnsfusing anywhere from a couple of thousand to tens of thousands units of blood per year).

INVENTORY MANAGEMENT AT
ARC'S REGIONAL BLOOD CENTERAT CLEVELAND, OHIO
Inventory management at ARC's regional blood center uses a top-down planning approach (see Figure 6), which involves planning collections for the next year down to
managing shortages and outdates that occur on a particular day.
Yearly Planning

An estimated

usage for the next year is obtained from all 60 hospitals that ARC at
Cleveland supplies. Then, using the historical data of demand and the estimated usage
for the next year, collections are planned for the coming year. This takes into account
the donors who might be deferred due to'illness or who have recently donated blood,
the blood units that ririgtrt be destroyed during testing, and the donations that might be
unsatisfactory because less than 1 pint is'collected. Figure 7, based on233,352 yearly
donors, shows that only 82 percent of the estimated collections result in productive
units.

PART

lY

Inventory Strategy

Unsatisfactory
donations

1%
i

Persons

deferred

Productive
units

Recruitrrent and Collections Analysis

82o/o.

Monthly Planni4g
This involves looking one month ahead and making sure that on every workday (Monday through Friday) in the.next month, the estimated collections will exceed a predetermined number of units. This predetermined number of units is obtained by averaging the yearly requirements over the number of workdays in a year. If, on a particular
diy in the coming month, the estimated collections are less than the predetermined
number of units, ARC would try to recruit donors for that day. Collections are sometimes made on Saturdays and Sundays, but generally not many units are collected on
the weekends.
,

Weekly Planning
This involves looking at the inventory levels of various blood types, planning production of blood components, and planning distribution to the various hospitals for the
whole week. A projection of demand is made at the beginning of a week. Then collections and production are planned on the basis of projected demand in thatrreek.

Daity Planning
This involves looking at the inventory and taking appropriate action in case of shortages and products being near their expiration date. A daily inventory report (see Table
5), which gives the inventory of each blood product by blood type, is generated during
every shift. A product inventory report (see Table 6), which gives the inventory of a
product by blo-od type and expiration date, is generated on every shift for platelets and
it least once daily for all other products. A shipping report (see Table 7), which gives
A+

Whole blood
Red cells
Random platelets

19
4',72

1,349

77

67

Plasma
Pheresis platelets

185

398

Cryo

478

346

B+

007000
99 539 t42 91
L6L7737429
246 277 46 85
s01.300
106 22 719 72

27

83

10s

2,880
275

45

50

L,2',72

25

11

1,,179

20

CHAPTER

Total

Random platelets
Random platelets

u/16

Pheresis platelets

02t17

Random platelets
Random platelets

02/78

Pheresis platelets

02/7s

7
o

02/1.9

84

u/19

Customer

ena
em
01:38 av
U2:19 *r
0l:32 *r
07:06 erra

policy Decisions

1.0 Inventory

01:33

O2:24 lrtvr

A:76

03:12

tu

I6

6s
J

11
2a.
511

35

19

34

11s
a
z

ZJ

235
12

Red Cellsl

JI

57

J_t

0
0

03:2g arra
04:19 ervr
05:4g eu

20

25

08:06 nvr

12

94

the number of units of each

day before, is generated
produced uy urlooJtype,
A FIFO (first in, first

I various ARC customers the

ch gives the number of units

da
for
or

ated daily.

seded by a,,standing orde

least three days of remain

qure emergency

procedures

Furthermo

average daily

rgency' or
of donors.

:{-f?,'HilJ

xcess inventory and/or nearing

their expiration dates are some_
may be a $20 disco_unt on red
UtooO

cels of bl,co;;;;;;;; r"_

to expire in a few t ourS.t

there may be a 50 percent ois.ou"t

on

pl.t"l;[ t'#;;;;;rrg

ASSESSING CUSTO]\{ER SERVICE

AT THE AMERICAN RED CROSS
The

way customer service levels are

assessed at the American
Red cross,s regional
blood centers is by computation
of a Customer Fil Rate. his is
done in two wayi
t
is given by the ratio of the number
of orders fiiled at 100 percent
illt"i"t"
to the
eachPro

It is
cryo,

Product
a

latelets,

li"SfTtl#llil;
elets

(seef"Uf" Sl.

PART

lY

Inventory StrategY

Red Blood

Frozen

Cells

Plasma

236
233

704
received
65
percent
100
filled at

Total number of ordels

*;;;;.,'0...

cryo

Random

Pheresis

Platelets

Platelets

325
306

175
775

266
252

i
i

Percenta

I
I
'a

j
shipped to the number of

units
,'i
2. Fill rate is given by the ratio of the n'mber of
for which
---)L^ -^^.,^-+^,r 1r' rha nrrsrnr.ne.r Re4 tllood cells are thebnly product
r^+ho eight
aiohf ii
^^^L of
^f the
for each
)i
, fresh frozen Plasma'
of the fill rate bY the '
Table 9).

ndards for fill rates by customer category'

Rh. The difference between the negotiated

mance is then comPuted'The mon-

to the regional blood center in its

ice.

Red

Blooil Cells

Units requested
Units shiPPed
Fill rate Percent
Regional standard

2,673

2,988

2,058

2,46t

2,752

1,864

92,07

92.10

Units requested
Units shifPed
Fill rate percent
for fill ratei Percent
Percent difference'

!0,7t7

202

46

9,360

90.57

74.27

86.6'1

81.78

82.14

8',7.34

100

95

'ts

85

80

85

88.75

-7.90

-4.43

-0.73

t.6'7

345
326

100

Random

Pheresis

cryo

Platelets

Platelpts

325

285

517

325

267

495

94.49

100.00

93.68

95.74

100

100

95

98

0.00

-1.32

-2.26

56

234

Frozen
Plasma

Regional standard

247

1,801.

90

for fill rate Percent

Percent difference

2,425

0
0

5.51

1.78 -2.86

-t.4r

'

CHAPTER I0 Inventory Policy Decisions

::

COMPETITION
The American Red Cross guarantees an average fill rate of 97 percent to its customers,
operating according to its stated mission.The smaller local blood banks are not capable
oi competing with ARC on its high fill rate. But, since the local blood banks have lower

fixed cbsts and provide no service level guarantee to their customers, they compete
with ARC on price. ARC needs to collect the quantity and mix of blood products demanded by the hospitals (because of its high customer service level guarantee), while
the local blood banks collect what they can. Very often the hospitals go shopping for
the lowest price, and they might take their business, or a part of it, to the local blood
banks that offer lower prices than ARC.

CONCLUSION
Dr. Croxton realizes that she is in a chaotic business. The disturbing amount of blood
outdating that took'place in March bothers her. Volunteers donated blood with good
intentions and a good part of it was outdated. In April, when she tried to reduce outdating, they ran into extreme shortages that resulted in lost revenue and lost goodwill.
She cinnot forget that this is a business and that she has to cover costs. Or is it gradually becoming like any other business where the objective is to make profits? And now,
more than ever before, there is competition in blood services. What is the best way to
manage the blood supply? How should prices be set in the face of competition? She
knows that the answers to some of the preceding questions are not easy, and she has a
lot of thinking to do.

QUESTIONS
1. Describe the inventory management problem facing blood services at the American
Red Cross.

2. Evaluate the current inventory management practices in light of ARC's mission.

3. Can you. suggest any changes in ARC's inventory pla_nning and control practices that
might lebd to cost reduction or service improvement?
4. Is pricing policy an appropriate mechanism to control inventory levels? If so, how
should price be determined? I