Case-3: Munchen Bicycle, Inc.

Munchen Bicycle, Inc. (MBI) is a wholesale distributor of bicycle and bicycle-parts. The firm’s primary retail outlets are located within an 800-mile radius of the distribution center. The retail outlets receive the order from MBI within two days after notifying the distribution center, 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 MBI loses that amount of business.

The company distributes a wide variety of bicycles. One of the most popular models, and a major source of revenue for the company, is the AstroBike. MBI receives all the models from a single manufacturer overseas, and shipment takes as long as four weeks from the time an order is placed. With the cost of communication, processing, and customs clearance included, MBI estimates that each time an order is placed, it incurs a cost of $65. The purchase price paid by MBI, 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 MBI. The retail price (paid by the customers) for the AstroBike is $170 per bicycle.

Assume it is now end of Dec 2012. MBI is interested in making an inventory plan for 2013. The firm wants to maintain a 95% service level with its customers to minimize the losses on lost orders. The data collected for the last two years are summarized in the following table. A demand forecast for AstroNike model in the upcoming year 2013 has been developed and will be used to make an inventory plan for MBI

Month Demand 2011 Actual 2012 Actual 2013 Forecast Jan 6 7 8 Feb 12 14 15 Mar 24 27 31 Apr 46 53 59 May 75 86 97 Jun 47 54 60 Jul 30 34 39 Aug 18 21 24 Sep 13 15 16 Oct 12 13 15 Nov 22 25 28 Dec 38 42 47 Total 343 391 439

Use an appropriate inventory model to…