Question

Jo Herrer started Herrer’s Bicycle Shop in Tilburg at the end of the 1980s, and the business has thrived in this very green university town in the Netherlands. Jo imports bikes from renowned global suppliers as kits, assembles them, and sells directly to consumers. The Flying Dutchman bicycle has been a great seller, easily the best-selling bike in the past years, and JO is looking for some help in making ordering decision on this important product. Jo obtains the bike kits from a supplier in Asia, with a lead time of one month from the time the order is place until the time it is received in Jo’s shop. There are significant ordering costs associated with placing an order; Jo estimates $100 for each order. Jo purchases each bike for $200 and sells each one, assembled, for $350. Jo estimates holding cost to be 18% of the purchase (not selling) price per year.

Discussion Questions
1. Given the data, can you provide advice to Jo on the order quantity and reorder point?
2. If Jo wanted to increase service to 99%, what would the new reorder point be? How much additional holding costs would result?
3. What critical assumption is not met in the analysis above? What improvements on the policy can you imagine?



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  • CreatedJuly 23, 2013
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