ZHOU BICYCLE

COMPANY

MATTHEW CERON
ABEL ELIGIO
CINDY LOPEZ
JESUS FIERRO
JOSH LINKER
 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 ROP’s 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) 2  439  65
Q  Q*   68 units of bicycles
Holding cost 12.24
Demand for AirWing Model
Demand for AirWing Model

120

100
97

80

Forecasted 2008
60 59 60
Average
47
40
36.58 36.58 36.58 36.58 36.58 36.58 39
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 ROP’s 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

•Safety Stock= 1.645(25.67)= 42

bicycles
•Total annual inventory cost= Annual holding cost + Annual ordering cost

• = ½ 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.
ZHOU BICYCLE
COMPANY

THE
END