Zhou Bicycle Company Zhou Bicycle Company (ZBC), located in Seattle, is a whole- sale distributor of bicycles and bicycle parts. Formed in 1981 by University of Washington Professor Yong-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 The company distributes a wide variety of bicycles. The most popular model, and the major source of revenue to the company, is the Air Wing. 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 com- munication, 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 2016. The firm wants to maintain a 95% service level with its 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 Air Wing model sales in 2016 has been developed and will be used to make an inventory plan for ZBC. Demands For Airwing Model MONTH 2014 January 6 February 12 2015 7 14 not from ZBC within 2 days after notifying the distribution center, provided that the stock is available. However, if an order 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. FORECAST FOR 2016 8 15 MONTH March April May June July August September October November December Total 2014 24 46 75 47 30 18 13 12 22 38 343 2015 27 53 86 54 34 21 15 13 25 42 391 FORECAST FOR 2016 31 59 97 60 39 24 16 15 28 47 439 Discussion Questions 1. Develop an inventory plan to help ZBC. 2. Discuss ROPs and total costs. 3. How can you address demand that is not at the level of the planning horizon? Source: Professor Kala Chand Seal, Loyola Marymount University.