Supply Chain Management for a Bicycle Company

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Supply Chain Management for a Bicycle Company

QUESTION 1

To determine the optimal quality and timing to align the Bicycle Company plans for producing and making sales, one has to develop an inventory plan. The following table gives a summary of the forecast demand for 2019.

Jan Feb Mar April May June July Aug Sept Oct Nov Dec Total

8 15 31 59 97 60 39 24 16 15 28 47 439

The average demand per month is given by

439/12= 36.58bicycles

The standard deviation is 24.58 bicycles for the monthly demand

The following costs and values are the determining factors to develop an inventory plan

Order cost = $ 65

The cost per bicycle = (60/100*170) = $102

The holding cost = ($102) * (1%) * (12) per bicycle per year gives a total of $12.24 per year per bicycle.

The service level = 95% with a Z value of 1.645

The lead time is one month which is equivalent to four weeks

The total demand per year is 439 units of bicycles

To find the total units of bikes, one has to calculate the Economic Order Quantity with the reorder points and safety stock, which assumes the seasonal nature of demand. The safety stock helps in dealing with demand fluctuation basing the situation on the demand variation over the planning horizon.

To calculate the Economic Order Demand, we take the total demand multiply by the ordering cost and multiply by two and divide with the holding cost, where calculations of the Holding cost and Total demand are done with the same time unit.

EOQ = 2*439*65/12.24 = 4662.58 then after getting the square root we have a total of 68 units of bicycle

QUESTION 2

The Reorder Point provides an adequate time to maintain the stock threshold. It ensures that the stock needed arrives on time to prevent running out of the stock. It also helps in preventing the unnecessary inventory holding costs that may interfere with placing orders on time.

When added to the safety stock, the Lead Time Demand gives the reorder points (Grob, 2018).

To calculate the ROP and the Total Cost we have

ROP =Average demand during the lead time + z (standard deviation of the demand during the lead time.

ROP = 36.58+1.645(24.58) which equals to 77 bicycles.

To get the Total Cost, we take the Holding cost per year to add to the Ordering cost per year

=1/2 EOQ* (Holding cost) + ss( Holding cost) +Total demand /EOQ(Ordering cost)

The safety stock is obtained by multiplying Z with the Standard deviation

=1.645 * 24.58 which equals to 40 bicycles

=$416.16+$489.60+$419.63 which gives a total of $1325.39

QUESTION 3

The bicycle organization has to choose all the orders and deliveries that lie within the demand horizon. Therefore, after giving the plot of the nature of demand, it is seen that it is not a level of demand over the planning horizon, making the Economic Order Quantity for the entire year inappropriate. To make the plan become more evenly distributed, one has to segment the planning horizon to make the demand become more evenly distributed and come up with an inventory plan for the segments (Song, Chen & Lei, 2018). In this way, the transition from one planning period to the next is managed.

References

Grob, C. (2018). Inventory Management in Multi-Echelon Networks: On the Optimization of Reorder Points (Vol. 128). Springer.

Song, J. M., Chen, W., & Lei, L. (2018). Supply chain flexibility and operations optimization under demand uncertainty: a case in disaster relief. International Journal of Production Research, 56(10), 3699-3713.

Sultan, M. F., KUBS-UoK, P. S., Khan, K. S., & Shere, S. M. (2019). Services: A Quantitative Study on Perceived Benefits Associated with Inventory Cost.