Zhou Case

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• Published : June 3, 2011

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BMGT524-1900-Global Operations Management

1) Develop an inventory plan to help ZBC.

We will use EOQ Formula in order to derive some data for estimates.

Annual demand = D = 439

Cost of Bicycle at whole sale (C) = 0.60*170 = \$102

Carrying cost (H) = 12% of cost = 102 *.12 = 12.24

Ordering cost (S) = \$65 per order

Lead time = 4 weeks

Re order point = ROP = daily demand x lead time (days)
= 439/365 * 28 = 33.67

EOQ Formula

Order quantity Q = Sqrt (2DS / H)

= Sqrt ( 2 * 439 * 65 / 102 *.12 )

= Squrt ( 4662.58)

= 68.28

Number of orders per year = D/Q = 439/68.28 = 6.42 Apx. 7 oders

Expected time between orders = 365/7 = 52 days

Their annual demand is 439 Units as forecasted in 2008. Based on that numbers and using the EOQ formula we can recommend them ordering at least 65 bicycles per order and place 7 orders a year in order to meet the minimum demands. I would recommend that they should have inventory planned at least little more than their forecast to meet spikes in demand and stop loosing the revenue due to low inventory. They can just order about 10 to 15 percent of the annual demand at the buffer stock and even though they have a reorder point defined. This could be adjusted based on the actual sales numbers since the orders are divided in seven of the total needs. 2. Discuss ROPs and total costs.

Re order point ROP is demand over the lead time.
ROP = daily demand x lead time (days)
= 439/365 * 28 = 33.67
Total costs analysis will be as following
Annual material cost = 102*439 = \$44778
Annual order cost = # of orders * S = 7*65 = \$455
Annual holding cost = (Q/2) H = 34.14 *0.12*102 = 417.87

Total annual cost = Annual material cost+ Annual order cost + Annual holding cost = 44778 + 455 + 417.87
= \$45650
The reorder point I have used the daily demand to get more accurate measure of the point. The total annual cost is the sum of all the cost involved. I have not...