Zhou Bicycle Company (ZBC), located in Vancouver, is a wholesale distributor of bicycles and bicycle parts. Formed in 1981 by Yong-Pin Zhou, the firm€™s primary retail outlets are located within a 650-kilometre radius of the distribution centre. These retail outlets receive the order from ZBC within two days after notifying the distribution centre, 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 bicycles. 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 four weeks from the time an order is placed. With the cost of communication, 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 thecustomers) for the AirWing is $170 per bicycle.

ZBC is interested in making an inventory plan for 2017. 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 two years are summarized in the preceding table. A forecast for AirWing model sales in 2017 has been developed and will be used to make an inventory plan for ZBC.

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?

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Demands for AirWing Model Forecast for 2017 2016 2015 6 Month January 14 February March April 12 15 31 24 24 27 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