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Martin-Pullin Bicycle Corp. (MPBC) Inventory problem

Martin-Pullin Bicycle Corp. (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. Theses 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 the shipment takes as long as four weeks from the time an order is placed. With the cost of communication, paperwork, and customer 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 AirWing is $170 per bicycle.

MPBC is interested in making an inventory plan for 2002. 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 2000 has been developed and will be used to make an inventory plan for MPBC.

Demand for AirWing Model

mth 2000 2001 Forecast for 2002

Jan 6 7 8
Feb 12 14 15
Mar 24 27 31
Apr 46 53 59
May 75 86 97
Jun 47 54 60
Jul 30 34 39
Aug 18 21 24
Sep 13 15 16
Oct 12 13 15
Nov 22 25 28
Dec 38 42 47

Total 343 391 439

Develop an inventory plan to help MPC.
Discuss ROP's and total costs.
How can you address demand that is not at the level of the planning horizon?

Can I complete all of this problem in QM? I want to do the problem, but I would like to have guidance on what steps to take to complete the problem.

Solution Summary

This posting contains solution to following Inventory management problem for Martin-Pullin Bicycle Corp. (MPBC),