A wholesale distributor of bicycles is having trouble with shortages of a popular model
(a small, one-speed girl’s bicycle) and is currently reviewing the inventory policy for this
model. The distributor purchases this model bicycle from the manufacturer monthly and
then supplies it to various bicycle shops in the western United States in response to purchase
orders. What the total demand from bicycle shops will be in any given month is
quite uncertain. Therefore, the question is, How many bicycles should be ordered from
the manufacturer for any given month, given the stock level leading into that month?
The distributor has analyzed her costs and has determined that the following are
important: