MKT $364-$ Operations Management

Case #$5-$ Inventory Management 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 Xong$-$Pin 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 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 $2023.$ The firm wants to maintain a $95\%$ service level with its customers to minimize losses on lost orders. The data collected for the past $2$ years are summarized in the following table. A forecast for AirWing model sales in $2023$ has been included and will be used to make an inventory plan for ZBC$.$

$\backslash$table$[[$Month$,2021,2022,2023$ Forecast$],[$January$,6,7,8$