Business Math (Inventory development plan)

CASESTUDY-MPBC.docx

Case Study

Martin-Pullin Bicycle Corporation

Martin-Pullin Bicycle Corporation (MPBC), located in Dallas,

is a wholesale distributor of bicycles and bicycle parts. Formed

in 1981 by cousins Ray Martin and Jim Pullin, the firm’s primary

retail outlets are located within a 400-mile radius of the

distribution center. These retail outlets receive the order from

Martin-Pullin 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 MPBC 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. MPBC 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, paperwork, and customs clearance included,

MPBC estimates that each time an order is placed, it incurs a

cost of $65. The purchase price paid by MPBC, 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 MPBC. The retail

price (paid by the customers) for the AirWing is $170 per

bicycle.

MPBC is interested in making the inventory plan for

2012. 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 following

table:

A forecast for AirWing model sales in the upcoming year

2012 has been developed and will be used to make an inventory

plan for MPBC.

Discussion Questions

1. Develop an inventory plan to help MPBC.

2. Discuss ROPs and total costs.

3. How can you address demand that is not at the level of the

planning horizon?