Zhou Bicycle Company

Zhou Bicycle Company (ZBC), 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 ZBC 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 ZBC 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. ZBC 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, ZBC estimates that each time an order is placed, it incurs a cost of $65. The purchase price paid by ZBC, 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 ZBC. The retail price (paid by the customers) for the AirWing is $170 per bicycle. ZBC is interested in making an inventory plan for 2008 . 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 following table. A forecast for AirWing model sales in 2008 has been developed and will be used to make an inventory plan for ZBC.

Discussion Questions

1. Develop an inventory plan to help ZBC.
2. Discuss ROPs and total costs.
3. How can you address demand that is not at the level of the planning horizon?

Sturdivant Sound Systems

Sturdivant Sound Systems manufactures and sells sound systems for both home and auto. All parts of the sound systems, with the exception of DVD players, are produced in the Rochester, New York, plant. DVD players used in the assembly of Sturdivant systems are purchased from Morris Electronics of Concord, New Hampshire.

Sturdivant purchasing agent Mary Kim submits a purchase requisition for DVD players once every 4 weeks. The company's annual requirements total 5,000 units ( 20 per working day), and the cost per unit is $60. (Sturdivant does not purchase in greater quantities because Morris Electronics does not offer quantity discounts.) Because Morris promises delivery within 1 week following receipt of a purchase requisition, rarely is there a shortage of DVD players. (Total time between date of order and date of receipt is 5 days.)

Associated with the purchase of each shipment are procurement costs. These costs, which amount to $20 per order, include the costs of preparing the requisition, inspecting and storing the delivered goods, updating inventory records, and issuing a voucher and a check for payment. In addition to procurement costs, Sturdivant incurs inventory carrying costs that include insurance, storage, handling, taxes, and so forth. These costs equal $6 per unit per year.

Beginning in August of this year, Sturdivant management will embark on a companywide cost-control program in an attempt to improve its profits. One area to be closely scrutinized for possible cost savings is inventory procurement.

Discussion Questions

1. Compute the optimal order quantity of DVD players.
2. Determine the appropriate reorder point (in units).
3. Compute the cost savings that the company will realize if it implements the optimal inventory procurement decision.
4. Should procurement costs be considered a linear function of the number of orders?

Wheeled Coach Case

Controlling inventory is one of Wheeled Coach's toughest problems. Operating according to a strategy of mass customization and responsiveness, management knows that success is dependent on tight inventory control. Anything else results in an inability to deliver promptly, chaos on the assembly line, and a huge inventory investment. Wheeled Coach finds that almost \(50 \%\) of the $40,000 to $100,000 cost of every ambulance it manufactures is purchased materials. A large proportion of that \(50 \%\) is in chassis (purchased from Ford), aluminum (from Reynolds Metal), and plywood used for flooring and cabinetry construction (from local suppliers). Wheeled Coach tracks these A inventory items quite carefully, maintaining tight security/control and ordering carefully so as to maximize quantity discounts while minimizing on-hand stock. Because of long lead times and scheduling needs at Reynolds, aluminum must actually be ordered as much as 8 months in advance.

In a crowded ambulance industry in which it is the only giant, its 45 competitors don't have the purchasing power to draw the same discounts as Wheeled Coach. But this competitive cost advantage cannot be taken lightly, according to President Bob Collins. "Cycle counting in our stockrooms is critical. No part can leave the locked stockrooms without appearing on a bill of materials."

Accurate bills of material (BOM) are a requirement if products are going to be built on time. Additionally, because of the custom nature of each vehicle, most orders are won only after a bidding process. Accurate BOMs are critical to cost estimation and the resulting bid. For these reasons, Collins was emphatic that Wheeled Coach maintain outstanding inventory control. The Global Company Profile featuring Wheeled Coach (which opens Chapter 14) provides further details about the ambulance inventory control and production process.

Discussion Questions*

1. Explain how Wheeled Coach implements ABC analysis.
2. If you were to take over as inventory control manager at Wheeled Coach, what additional policies and techniques would you initiate to ensure accurate inventory records?
3. How would you go about implementing these suggestions?

5.15. Linda Engineering designs and constructs air conditioning-and heating (HVAC) systems for hospitals and clinics. Currently the company's staff is overloaded with design work. There is a major design project due in 8 weeks. The penalty for completing the design late is $14,000 per week, since any delay will cause the facility to open later than anticipated, and cost the client significant revenue. If the company uses its inside engineers to complete the design, it will have to pay them overtime for all work. Linda has estimated that it will cost $\$ 12,000$ per week (wages and overhead), including late weeks, to have company engineers complete the design. Linda is also considering having an outside engineering firm do the design. A bid of $\$ 92,000$ has been received for the completed design. Yet another option for completing the design is to conduct a joint design by having a third engineering company complete all electromechanical components of the design at a cost of $\$ 56,000$. Linda would then complete the rest of the design and control systems at an estimated cost of $\$ 30,000$.

Linda has estimated the following probabilities of completing the project within various time frames when using each of the three options. Those estimates are shown in the following table:

What is the best decision based on an expected monetary value criterion? (Note: You want the lowest EMV because we are dealing with costs in this problem.)

S6.25. The accounts receivable department at Wills and Brothers Manufacturing has been having difficulty getting customers to pay the full amount of their bills. Many customers complain that the bills are not correct and do not reflect the materials that arrived at their receiving docks. The department has decided to implement SPC in its billing process. To set up control charts, 10 samples of 50 bills each were taken over a month's time and the items on the bills checked against the bill of lading sent by the company's shipping department to determine the number of bills that were not correct. The results were:

1. Determine the value of \(p\) -bar, the mean fraction defective. Then determine the control limits for the \(p\) -chart using a \(99.73 \%\) confidence level ( 3 standard deviations). Is this process in control? If not, which sample(s) were out of control?
2. How might you use the quality tools discussed in Chapter 6 to determine the source of the billing defects and where you might - start your improvement efforts to eliminate the causes?

17.16. Rocky Casdoze, salesperson for Wave Soldering Systems, Inc. (WSSI), has provided you with a proposal for improving the temperature control on your present machine. The machine uses a hot-air knife to cleanly remove excess solder from printed circuit boards; this is a great concept, but the hot-air temperature control lacks reliability. According to Rocky, engineers at WSSI have improved the reliability of the critical temperature controls. The new system still has the four sensitive integrated circuits controlling the temperature, but the new machine has a backup for each. The four integrated circuits have reliabilities of .90, .92, .94, and .96. The four backup circuits all have a reliability of .90.

1. What is the reliability of the new temperature controller?
2. If you pay a premium, Wing says he can improve all four of the backup units to .93. What is the reliability of this option?

Price: $38.51

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