Zhou Bicycle Company

ZHOU BICYCLE COMPANY

Operations Management Presentation

3/3/2014

In 1991, University of Washington professor Yong-Pia Zhou formed a wholesale bicycle distributor company. Located in Seattle Washington, Zhou Bicycle Company (ZBC) serves as distributor of bicycles and bicycle parts for retail outlets. Most of these retail outlets are within a 400 mile radius of the distribution center. ZBC’s major source of revenue is the AirWing model. This is also the most popular model. Using a single manufacturer in China, ZBC's orders can take as long as four weeks from the time an order is placed to shipment.

​ZBC charges an estimated fee of $65 for communication, paperwork, and customs clearance. Their purchase price per bicycle is roughly 60% of the suggested retail price. ZBC also has an inventory carrying cost of 12% per year of the purchase price per bicycle. ZBC prices its AirWing model at $170 per bicycle.

​ZBC retailers receive their order within 2 days of notification to the distribution centers. However, if an order is out of stock, ZBC does not fulfill the order; they lose the business. This results in the retailers using other distributors. With the information provided, we hope to develop an inventory plan, discuss ZBC's reorder point along with the total cost, and lastly address the demand that is not the level of the planning horizon. This will help ZBC maintain its 9.5% service level and minimize the losses.

The inventory plan is based on the following values and model:

* The ordering cost is $65.00 per order

* The cost per bicycle is $102.00

* The holding cost is $102.00 x 1% x 12 months per year per bicycle which = $12.24 per year per bicycle

* The lead time is 4 weeks

* The total demand per year is 439 bicycles

We can solve by using the Simple EOQ model below:

When we plug in the numbers into the model we find that 68 bicycles is the optimal number of units we need to order.

Our next step is to find out how many...