Develop an inventory plan to help SH 

Shimano Racing Bike Company (SH), 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 SH 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 SH loses the 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. SH 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, SH estimates that each time an order is placed, it incurs a cost of $65. The purchase price paid by SH, 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 SH. The retail price (paid by the customers) for the AirWing is $170 per bicycle. SH 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 the lost orders. The data collected for the past 2 years are summarized in the preceding table. A forecast for Air Wing model sales in 2013 has been developed and will be used to make an inventory plan for SH.

Demands for AirWing Model

Month 2011 2012 Forecast 2013
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

Required:

i. Develop an inventory plan to help SH

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