UNIVERSITY OF SAN CARLOS UNIVERSITY Cebu City, Philippines

Department of Business Administration College of Commerce MASTER OF BUSINESS ADMINISTRATION

OPERATIONS MANAGEMENT Case Study: MPBC Submitted to: ENGR. JOVENAL M. ARNAIZ Submitted by: Amores, James Anthony P. Billones, Bobbie Dylanie O. Balinos, Maria Christine D. Maraon, Charity J. Lucero, Dominic Kyle D.

Martin-Pullin Bicycle Corporation Demand for AirWing Model: Yr Month Yr 1997 1998 Jan 6 7 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 12 24 46 75 47 30 18 13 12 22 38 343 14 27 53 86 54 34 21 15 13 25 42 391

Forecast 1999 8 15 31 59 97 60 39 24 16 15 28 47 439

AirWing - MPBC Popular model annual demand = 439 units cost of each valve = $170.00 inventory carrying cost ~ 1% p/month = 12% p/year average ordering cost = $65.00 p/order order arrival time ~ 4 weeks = 1month service Level desired is 95% carrying cost Ch = $12.24 Total Annual Cost: = Setup cost + Holding cost + Purchase cost = 439/68(65) + 68/2(12.24) + 102(439) = 419.63 + 416.16 + 44,778 = 45,613.79 Carrying Cost/Unit/Year Ch = $12.24 Cost/Unit (to Customer) Cost/Unit (MPBC) Cost/Order Delivery Time/Order CuC = $170.00 Cu = $102.00 Co = $65.00 L = 1 Month 0.12*102=$12.24 p/bicycle/year $170.00 p/bicycle 0.6*170 = $102.00 p/bicycle $65.00 p/order 1 month

Z value, area under the normal curve for service level of 95% = 1.6449 (Taken from Appendix A, in the text)

EOQ = 68.2831 ROP = Average demand during lead time + Z (Standard deviation of demand during lead time) Data represents the entire Stand Deviation = 24.581 population Avg Demand p/mth = 36.583 Z= 1.6449 EOQ = 68 ROP = 36.583 + (1.6449)(24.581) = 36.583 + 41.74 = 77.0162869 Carrying cost = 12.24 SS = 24.581*1.6449 = 40.4332869safety stock SS Carrying cost = 494.9034317 Total Annual Cost: = Setup cost + Holding cost + Purchase cost = 439/68(65) + 68/2(12.24) + 102(439) = 419.63 + 416.16 + 44,778 = 45,613.79

1) Develop an inventory plan to help MPBC Our recommendation from the inventory perspective would be to maintain a larger inventory than what might be currently being considered. Case in point, instead of ensuring an inventory is available from a monthly perspective; I would look at the entire projected sales for the year, and make sure to maintain a 10% inventory in addition to the project yearly sales. My rational for this is based on the fact that the bikes are being shipped from China and the time and cost associated with getting the bicycles imported to Washington State. Once a 10% inventory is obtained, I would maintain this inventory with the purchase of extra bicycles, in my monthly purchase from China as bicycles within the inventory that are sold. 2) Discuss ROPs and total costs. The initial costs to create the inventory may be significant when initially reviewing. Yet, over time to include, the loss of sales to other distributors along with the reduction in the cost process of bringing bicycles into the country; Over the long term, the total costs will decrease and an increase in profits will be achieved. The main objective is to consolidate the processing of new bicycle imports which enables the company to focus on the core business, thus ensuring the companys customers being satisfied. 3) How can you address demand that is not at the level of the planning horizon?

As mentioned previously above, the projected overall sales for the year should be taken into account, and not on a month to month basis, but instead from an entire year perspective. Taking a long term strategic viewpoint will ensure that the bikes are in stock for customers, thus prevent customers from going to other distributors, and ultimately increasing sales and reducing overall costs associated with the importing of the bicycles.