Background
Zhou Bicycle Company (ZBC), located in Seattle, is a wholesale distributor of bicycles and bicycle parts. Formed in 1981 by University of Washington Professor Yong-Pin Zhou, the firmâs primary retail outlets are located within a 400-mile radius of the distribution center. These retail outlets receive the order from ZBC within 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 bicycles. 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 time an order is placed. With the cost of communication, paperwork, and customs clearance included, ZBC estimates that each time an order is placed, 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 interested in making an inventory plan for 2016. The firm wants to maintain a 95% service level with its 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 2016 has been developed and will be used to make an inventory plan for ZBC.
Month
2014
2015
2016 Forecast
January
6
7
8
February
12
14
15
March
24
27
31
April
46
53
59
May
75
86
97
June
47
54
65
July
30
34
39
August
18
21
27
September
13
15
16
October
12
13
15
November
22
25
28
December
38
42
47
Totals
343
391
447
Bonus Question: Trace the inventory balance over the course of the year. Assume starting inventory balance of 35 bicycles. Also assume that retail orders are called into ZBC the first business day of every month and the first order to ZBC suppliers is on Jan 4, 2016.
Hint: Take into consideration orders to suppliers and supplier lead time, orders from retailers and lead time in shipments to retailers, as well as the estimated time between orders to suppliers. Consider creating a table such as:
What conclusions or recommendations do you draw from tracing the inventory in step 5?
Date
Description
Order Amount
Inventory In
Inventory Out
Inventory Balance
Beginning inventory
35
1/4/2016
Monday
Retail order received
8
35
1/4/2016
Monday
Order placed to supplier
EOQ
35
####
XXXXX
Retail order sent out
8
27
####
XXXXX
Supplier order received
EOQ
###
2/1/2016
Monday
Retail order received
15
###
####
XXXXX
Retail order sent out
15
###
####
XXXXX
Order placed to supplier
EOQ
###
Background
Zhou Bicycle Company (ZBC), located in Seattle, is a wholesale distributor of bicycles and bicycle parts. Formed in 1981 by University of Washington Professor Yong-Pin Zhou, the firmâs primary retail outlets are located within a 400-mile radius of the distribution center. These retail outlets receive the order from ZBC within 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 bicycles. 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 time an order is placed. With the cost of communication, paperwork, and customs clearance included, ZBC estimates that each time an order is placed, 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 interested in making an inventory plan for 2016. The firm wants to maintain a 95% service level with its 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 2016 has been developed and will be used to make an inventory plan for ZBC.
| Month | 2014 | 2015 | 2016 Forecast |
| January | 6 | 7 | 8 |
| February | 12 | 14 | 15 |
| March | 24 | 27 | 31 |
| April | 46 | 53 | 59 |
| May | 75 | 86 | 97 |
| June | 47 | 54 | 65 |
| July | 30 | 34 | 39 |
| August | 18 | 21 | 27 |
| September | 13 | 15 | 16 |
| October | 12 | 13 | 15 |
| November | 22 | 25 | 28 |
| December | 38 | 42 | 47 |
| Totals | 343 | 391 | 447 |
Bonus Question: Trace the inventory balance over the course of the year. Assume starting inventory balance of 35 bicycles. Also assume that retail orders are called into ZBC the first business day of every month and the first order to ZBC suppliers is on Jan 4, 2016.
Hint: Take into consideration orders to suppliers and supplier lead time, orders from retailers and lead time in shipments to retailers, as well as the estimated time between orders to suppliers. Consider creating a table such as:
What conclusions or recommendations do you draw from tracing the inventory in step 5?
| Date | Description | Order Amount | Inventory In | Inventory Out | Inventory Balance | |
| Beginning inventory | 35 | |||||
| 1/4/2016 | Monday | Retail order received | 8 | 35 | ||
| 1/4/2016 | Monday | Order placed to supplier | EOQ | 35 | ||
| #### | XXXXX | Retail order sent out | 8 | 27 | ||
| #### | XXXXX | Supplier order received | EOQ | ### | ||
| 2/1/2016 | Monday | Retail order received | 15 | ### | ||
| #### | XXXXX | Retail order sent out | 15 | ### | ||
| #### | XXXXX | Order placed to supplier | EOQ | ### | ||
