Problem:
Zhou Bicycle Company, located in Seattle, is a wholesale distributor of bicycles and bicycle parts. Formed in 1991 by University of Washington Professor Yong-Pia Zhou, the firm's primary retail outlets are located within a 400-mile radius of the distribution center. These retail outlets receive the order from ZBC with 2 days after notifying the distribution center, provided that the stock is available. However, if an order is not fulfilled by the company, no backorder is placed; the retailers arrange to get their shipment from other distributors, and ZBC loses that amount of business.
The company distributes a wide variety of bicycle. The most popular model, and the major source of revenue to the company, is the AirWing. ZBC receives all the models from a single manufacturer in China, and shipment takes as long as 4 weeks from the times an order is place. With the cost of communication, paperwork, and customs clearance included, ABC estimates that each time an order is place, it incurs a cost of $65. The purchase price paid by ZBC, per bicycle, is roughly 60% of the suggested retail price for all the styles available, and the inventory carrying cost is 1% per month (12% per year) of the purchase price paid by ZBC. The retail price (paid by the customers) for the AirWing is $170 per bicycle.
ZBC is in interested in making as inventory plan for 2006. The firm wants to maintain a 9.5% service level with is customers to minimize the losses on the lost orders. The data collected for the past 2 years are summarized in the following table. A forecast for AirWing model sales in 2006 has been developed and will be used to make an inventory plan for ZBC.
DEMAND FOR AIRWING MODEL
MONTH 2004 2005 FORECAST FOR 2006
JANUARY 6 7 8
FEBRUARY 12 14 15
MARCH 24 27 31
APRIL 46 53 59
MAY 75 86 97
JUNE 47 54 60
JULY 30 34 39
AUGUST 18 21 24
SEPTEMBER 13 15 16
OCTOBER 12 13 15
NOVEMBER 22 25 28
DECEMBER 38 42 47
343 391 439
Questions to be answered:
1: Develop an inventory plan to help ZBC.
2: Discuss ROP's and total costs.
3: How can you address demand that is not at the level of the planning horizon?