When she established the department, she named Ann Hill, one of her best clerical workers at the time, to establish and manage the department. At first, the department occupied only a corner of the production warehouse, but now it has grown to occupy its own 100,000-square-foot warehouse. The service business has also grown significantly, and it now represents over 15% of the total revenue of Northcutt Bikes. The exclusive mission of the service department is to provide parts (tires, seats, chains, etc.) to the many retail businesses that sell and service Northcutt Bikes.
1. Use the available data to develop inventory policies (order quantities and reorder points) for the FB378 and GS131. Assume that the holding cost is 20% of unit price.
2. Compare the inventory costs associated with your suggested order quantities with those of the current order quantities. What can you conclude?
3. Do you think the lost customer sales should be included as a cost of inventory? How would such an inclusion impact the ordering policies you established in question 1?