Inventory Rationalization for Medical Device Sterile Packaging

Scenario

Project Type: Regulatory-compliant supply chain redesign for Class II medical device manufacturer Location Context: FDA-registered facility in San Diego, California, packaging single-use electrosurgical pencils Constraints: Sterile packaging has 24-month shelf life; expiration-driven obsolescence risk; ISO 13485 requires documented justification for all inventory policies; and setup costs include full sterilization validation batch release (not just procurement).

Given Data

• Annual demand (D): 12,600 units/year (based on 30 hospitals × 35 units/week × 52 weeks, adjusted for 5% forecast error buffer)
• Setup cost per order (S): $420/order (includes sterilization cycle validation, microbial testing, and QA sign-off per batch)
• Holding cost per unit per year (H): $8.40/unit·year (28% annualized cost: 18% cost of capital + 7% insurance + 3% obsolescence risk premium due to shelf-life decay)

Calculation

EOQ formula: $$ \text{EOQ} = \sqrt{\frac{2DS}{H}} = \sqrt{\frac{2 \times 12600 \times 420}{8.40}} = \sqrt{\frac{10,584,000}{8.40}} = \sqrt{1,260,000} \approx 1122.5 \text{ units} $$ Rounded to nearest whole unit: 1,123 units.

Result and Decision

EOQ of 1,123 units corresponds to ~32 days of supply (1,123 ÷ 12,600 × 365). Because shelf life is 730 days, this poses negligible expiration risk. However, the team cross-validated with minimum order quantity (MOQ) from the sterilization vendor: 1,000 units. Since EOQ > MOQ and falls within ±5% of MOQ, they standardized orders at 1,125 units (a clean multiple of 25 for pallet stacking and traceability). This reduced annual holding + setup cost by 14% versus prior fixed 500-unit orders.

Lesson

In regulated industries, EOQ must be reconciled not only with physical constraints but also with compliance-driven batch requirements (e.g., sterilization validation, lot traceability)—treat vendor MOQs and regulatory batch sizes as hard bounds, not soft suggestions.