Module 4 – Chapter 6
Case Study: Martin-Pullin Bicycle Corporation
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. 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 ...view middle of the document...
The output of QM is shown in figure 1.
Figure 1. QM output for given data.
To keep the total costs as low as possible, the optimal order quantity should be maintained. This means an average inventory of 34.14. The Annual Setup cost and Annual Holding cost would both be $417,89. As a result, the total annual inventory cost is $835.78 (2 x 417.89).
Discuss ROPs and total costs
To determine the Reorder Point (ROP), the demand and the demand standard deviation must be known. The demand is determined by dividing the total of the 2011 forecast by the number of months and the standard deviation is determined using Microsoft Excel.
Figure 2. QM output for ROP
As a result of the sum of the Demand standard deviation and the safety stock, the ROP is 76.89 which the inventory position at which an order should be placed. The total costs can be found in Figure 1. Annual inventory holding cost plus annual setup cost plus purchase cost gives the total cost of $45613.79.