MPBC1. To help MPBC with their inventory level I chose the application of economic order quantity. The company wants to ultimately have on hand, the full order for every satellite store. If they do not have the bicycles to fulfill the order, they have to ship from another distributor because they keep no back stock. If another distributor has to be utilized than the company loses out on profit. The problem to analyze with this case study is how many bicycles need to be stored at the distribution center so that outside orders do not have to be made.
The satellite store receives their requested shipment within two days from the distribution center. However the distribution center gets shipments from overseas and these orders can take up to four weeks to arrive. 4x7 = 21 days lead time on average from overseas distributor.
The total demand per ...view middle of the document...
At this point on the table, the lowest cost per order is determined. Also note the average inventory that the distribution center should keep on hand. This number determines when to reorder product, eliminating the need to order from another distributor, causing loss of profit for MPBC.
In year 2009, the optimal order quantity is 47 bikes. About 7 orders would be made per year of 47 bicycles for total cost of $953.75 per order, and $59,263.75 per year. The reorder point for this data would be when the inventory has been reduced to its average of 23 bikes. When inventory reaches 23 a new order should be placed for 47 more bikes to ensure that orders can continue to be filled for satellite stores, while allowing enough lead time to replenish stock.
In year 2010, the optimal order quantity is 50 bikes. About 8 orders would be made per year of 50 bicycles for total cost of $1,018.30 per order, and $67,488.30 per year. The reorder point for this data would be when the inventory has been reduced to its average of 24 bikes.
In the forecast for 2011, the optimal order quantity is 53 bikes. About 8 orders would be made per year of 53 bicycles for total cost of $1,079.00 per order, and $75,708.99.30 per year. The reorder point for this data would be when the inventory has been reduced to its average of 27 bikes.
3. To address the demand that is not at the level of the planning horizon we continue to view the data from a yearly projection versus monthly. When MPBC is focused on a long term plan, there is an increased likelihood to consistently have the bicycles in stock that its satellite stores need. When supply meets demand, another distributor does not have to be used, thus increasing overall profits. Also having a grasp on yearly demand can better predict how many times per year orders need to be placed. When we can find an ideal number of inventory and number of orders needed, the ordering cost is reduced. All forecasting data is working toward the same end goal which is reducing bottom line costs, and increasing profits.