Zhou Bicycle Case Study

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Zhou Bicycle Case Study

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 |  | | ...
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