Lorex Pharmaceuticals

Lorex Pharmaceuticals

Team Write-Up

Carter Blakely has one more task remaining before he leaves Lorex Pharmaceuticals on Friday afternoon - which target amount should he use to fill each 10-ounce bottle of Linatol? He would like to revise the filling target from his 10.2 trials to reduce the number of under-filled bottles without compromising the gross margin. Our team recommends that Blakely change the target fill number from 10.2 to 10.302 to maximize the gross margin. At a target of 10.302 - assuming a normal distribution and standard deviation of 0.16 - the acceptance rate of bottles over 10.0 is 96.9% and the gross margin is $162,238.29. Any target above or below 10.302 would decrease the gross margin.

To determine this ideal target, we assumed that:

* The production output follows a normal distribution

* The standard deviation of 0.16 (based on previous trials at a 10.2 target) and that this standard deviation is constant

* We can use a fraction of a filling room attendant's' effort (utilization percentage of 9%) and only allocate that effort to the production cost; we assume that their time spent on other tasks is allocated elsewhere

* The active ingredients, blending direct labor, blending indirect labor, and blending overhead costs are consistent and scalable across hour and ounce as stated in Exhibit 1

* Blakely is able to calibrate the target number as precise as three decimal places (10.302 instead of just at 10.3); either way, 10.3 would be a more ideal target than 10.2

* Production information is consistent - all of our figures are based on producing a 5,000 liter batch, yet our analysis should apply to any production output

* Production rate is constant at 500 cases over an eight-hour shift, given unavoidable delays and setup requirements

It is important to note that when looking at the 10.2 target sample, the acceptance rate is different than the expected acceptance rate, based on statistical probability.