Working as an individual or in a team of three or more people, evaluate one
or more of the following organizations concerning their use of the Juran
Trilogy.
(a) Large bank
(b) Health-care facility
(c) University academic department
(d) University nonacademic department
(e) Large department store
(f) Grade school
(g) Manufacturing facility
(h) Large grocery store
Book: Dale H. Besterfield, Carol Besterfield-Michna, Glen H. Besterfield,
Mary Besterfield-Sacre, Hemant Urdhwareshe, Rashmi Urdhwarshe - Total
Quality Management (For ANNA University)-Pearson Education
Ch 5 Exercise Q 2
MGT 364 – Operations Management
Case #5 – Inventory Management
Background
Zhou Bicycle Company (ZBC), located in Seattle, is a wholesale 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 from ZBC within 2 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 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 4 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 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 AirWing model
sales in 2016 has been developed and will be used to make an inventory plan for ZBC.
Month 2014 2015 2016 Forecast
January 6 7 8
February 12 14 15
March 24 27 31
April 46 53 59
May 75 86 97
June 47 54 65
July 30 34 39
August 18 21 27
September 13 15 16
October 12 13 15
November 22 25 28
December 38 42 47
Totals 343 391 447
Solution Requirements
Utilize Microsoft Excel or Word to complete the following steps:
1. Develop an annual inventory plan for to help ZBC. To do so, begin by calculating the
economic order quantity. Hint: Have to convert the inventory carrying cost % to
annual $ amount.
2. How many times should orders be placed throughout the year? How often should
orders be placed? Hint: assume 300 working days per year.
3. What is the reorder point, assuming safety stock will be included?
4. What are the total costs of inventory?
5. Bonus Question: Trace the inventory balance over the course of the year. Assume
starting inventory balance of 35 bicycles. Also assume that retail orders are called into
ZBC the first business day of every month and the first order to ZBC suppliers is on
Jan 4, 2016. Hint: Take into consideration orders to suppliers and supplier lead time,
orders from retailers and lead time in shipments to retailers, as well as the estimated
time between orders to suppliers. Consider creating a table such as:
