Northcutt Bikes is a bike manufacturer and a service provider of bike parts to the many retail businesses that sell Northcutt bikes. Northcutt Bikes has a warehouse that is 95% utilized however they have an order fulfillment rate of less than 80%. This has caused a loss of revenue due to orders being cancelled when needed parts are not in stock. To resolve the problem, we looked at 3 alternatives including establishing pooling groups within the same geographic region, establishing a continuous review inventory management system or staying the course. Our recommendation is to establish a continuous review inventory system that will reduce unnecessary inventory, increase ...view middle of the document...
Pooling groups can make effective allocation of safety stocks in the retail business, and is also a key for retail business to enhance overall operational efficiency. However, one problem that needs to be addressed is how to solve the conflict of pooling groups’ demand.
2. Another possible solution is that Northcutt Bikes could develop an information system that helps retail business divide the safety stocks of these items among themselves. To be specific, through sharing inventory information to retail business, Northcutt Bikes still owns controlling inventory management, including inventory types, quantity and timing of orders, and inventory ownership still belongs Northcutt Bikes. As a result, Northcutt Bikes can reach a win-win goal reducing inventory costs and improving service standards.
3. If Northcutt Bikes prefers to stay the current inventory strategy, then it should be aware that purpose of each inventory location should be distinguished according to the importance of parts. For example, some inventory locations should address retailers’ demands and the upstream should fulfill replenishment needs to Northcutt Bikes steady and normally.
In order to meet both of Northcutt’s objectives of reducing inventory and increasing service levels, Northcutt should implement a continuous review system to manage inventory. Based on the calculations provided in question 2 of the appendix, managers at Northcutt will need to set the reorder point for part FB378 at 118 units and 296 units for part GS131 for the continuous review system to meet their 95% service level requirement. The economic order quantity that should be used for reordering is 92 units for part FB378 and 118 for part GS131 as determined by the calculation performed in question 2 of the appendix.
In order to implement this system Northcutt will need to purchase barcode scanners, inventory software, and computer systems (Rovney, 2010). Staff will have to undergo training on the new system. In order to minimize errors, top performers during training should be identified. These top performers will be responsible for monitoring other employees’ use of the system for the first 30 days.
Assumptions, Restrictions and Constraints
The first assumption is that the competitive strength of the company is still developed around customer responsiveness and flexibility and that creating a...