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

Required:

i. Develop an inventory plan to help SH