Mike realized he also needed input from Ann about her perspective on the business. She indicated that she felt strongly that with better management, Northcutt Bikes should be able to use the existing warehouse for years to come, even with the anticipated growth in business. Currently, however, she views the situation as a crisis because "we're bursting at the seams with inventory. It's costing us a lot of profit, yet our service level is very poor, at less than $80\%.$ I$\text{'}$d like to see us maintain a $95\%$ or better service level without back orders, yet we need to be able to do that with a net reciuction in total inventory. What do you think, Mike? Can we do better?"

Questions

Use the available data to develop inventory policies $($order quantities and reorder points$)$ for the FB$378$ and GS$131.$ Assume that the holding cost is $20\%$ of unit price.

Compare the inventory costs associated with your suggested order quantities with those of the current order quantities. What can you conclude?

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 $1?$