MATTHEW CERON

ABEL ELI GI O
CI NDY LOPEZ
JESUS FI ERRO
JOSH LI NKER
ZHOU BICYCLE
COMPANY
BACKGROUND ON ZBC
Located in Seattle, ZBC is a wholesale distributor of
bicycles and bicycle parts.

Formed in 1991 by University of Washington Professor
Yong-Pia Zho.

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.
ZBC BUSINESS PROCESS
1. Retail outlets are located within a 400-mile
radius of the distribution center.

2. These retail outlets receive the order from ZBC
within 2 days after notifying the distribution
center, provided that the stock is available
.
3. However, if an order is not fulfilled by the
company, no backorder is place.

4. The retailers then arrange to get their shipment
from other distributors, and ZBC loses that amount
of business.

Business Process
ZBC estimates that each tie an order is placed, it
incurs a cost of $65 for communication,
paperwork, and customs clearance.

Purchasing price paid by ZBC, per bicycle, is
roughly 60% of suggested retail price for all styles
of bicycle.

The inventory carrying cost is 12% per year of the
purchase price paid by ZBC. Retail price for the
AirWing is $170 per bicycle.

Demands for AirWing Model
MONTH 2006 2007 FORECAST FOR 2008
January 6 7 8
February 12 14 15
March 24 27 31
April 46 53 59
May 75 86 97
June 47 54 60
July 30 34 39
August 18 21 24
September 13 15 16
October 12 13 15
November 22 25 28
December 38 42 47
Total 343 391 439
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.

An Inventory plan to help ZBC
Average Demand Per month= 439/12= 36.58 bikes
Standard Deviation of month= 25.67 bikes
Order cost= $65/order
Cost per bike= $102.00
Holding cost= ($102.00) x (1%) x 12 per year per bicycle
$12.24 per year/bicycle
Service level= 95% and Z-value = 1.645
Lead time= (4 weeks)
Total demand/year= 439 units of bicycles
Economic order
quantity = Q*omi
order quantity =
Q*
*
2 (Total demand) (Ordering cost)
Holding cost
Q

*
2 439 65
68 units of bicycles
12.24
Q


Demand for AirWing Model
Demand for AirWing Model
8
15
31
59
97
60
39
24
16
15
28
47
36.58 36.58 36.58 36.58 36.58 36.58 36.58 36.58 36.58 36.58 36.58 36.58
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Forecasted 2008
Average
ROPs and Total Costs


Reorder point (ROP) Average demand during the lead time ()+ Z
(Standard deviation of the demand during the lead time ())
ROP= ()+ Z () ROP= 36.58+ 1.645 (25.67)= 79
bicycles
Total annual inventory cost= Annual holding cost + Annual ordering cost
Safety Stock= 1.645(25.67)= 42
bicycles
= Q* (holding cost) + SS (holding cost) + Total Demand/Q* (Ordering Cost)
=$416.16+$514.08+$419.63=$1,349.87
TOTAL COST= $1,349.87
How can you address demand that is not at the level of
the planning horizon?
According to the information, the
demand shows that it is not a level
demand over the planning horizon.
Therefore, a EOQ for an entire year
should not be used due to seasonal
sales. A planning horizon to use might
be a quarterly planned horizon because
this would be more evenly distributed
and help make a plan for each segment.

THE
END
ZHOU BICYCLE
COMPANY