Zhou Bicycle Case StudyZhou 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 JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER 2004 6 12 24 46 75 47 30 18 13 12 22 38 343 2005 7 14 27 53 86 54 34 21 15 13 25 42 391 FORECAST FOR 2006 8 15 31 59 97 60 39 24 16 15 28 47 439 Yet. Once a 10% inventory is obtained.Questions/Computations that need to be answered/solved: Need to show computations that lead to the recommendations made for each question listed below. the loss of sales to other distributors along with the reduction in the cost process of bringing bicycles into the country. and make sure to maintain a 10% inventory in addition to the project yearly sales. but instead from an entire year perspective. instead of ensuring an inventory is available from a monthly perspective. safety stock and total annual inventory cost from the case study. Over the long term. over time to include. 1) Develop an inventory plan to help ZBC. I would look at the entire projected sales for the year. thus prevent customers from going to other distributors. in my monthly purchase from China as bicycles within the inventory that are sold. and not on a month to month basis. The main objective is to consolidate the processing of new bicycle imports which enables the company to focus on the core business. Case in point. thus ensuring the company’s customers being satisfied. the total costs will decrease and an increase in profits will be achieved. 3) How can you address demand that is not at the level of the planning horizon? As mentioned previously above. Also need to see a simple EOQ model with computations of reorder point. My rational for this is based on the fact that the bikes are being shipped from China and the time and cost associated with getting the bicycles imported to Washington State. 2) Discuss ROP’s and total costs. the projected overall sales for the year should be taken into account. My recommendation from the inventory perspective would be to maintain a larger inventory than what might be currently being considered. Taking a long term strategic viewpoint will ensure that the bikes are in stock for customers. I would maintain this inventory with the purchase of extra bicycles. The initial costs to create the inventory may be significant when initially reviewing. . based on the above case study. and ultimately increasing sales and reducing overall costs associated with the importing of the bicycles.