Emily McCarthy

Northcutt Bikes Executive Summary

Introduction:
This Executive Summary focuses on ways to improve the management of
materials within the Northcutt Bikes Company.
Although there is an average of over 70 days worth of inventory, the fill rate
for customers is less than 80%, meaning that only 80% of the items
requested are in inventory. The remaining parts become backordered, which
then leads to product or order cancelations.
While there is plenty of inventory overall, the timing and quantities are
misplaced. A solution to this problem is to look at the companys product
demand history and to compare the total relevant costs and the cycle stocks
associated with the current order quantities in order to find ways to make the
process more efficient.
Northcutt Bikes does not have a demand history for all products in inventory,
so a solution was developed focusing on two items that have a clear demand
history: the FB378 Fender Bracket and the GS131 Gear Sprocket. The idea is
to analyze and correct any problems with the two mentioned parts and to
expand the analysis to most of the others.
Findings:
All of the information provided in the products demand history was entered
into excel and used as a basis for the calculations for the current and
proposed cycle stock (CS), annual ordering cost (OC), annual inventory
carrying cost (CC), annual percentage cost (PC), and the total relevant cost
for the two products (TRC).

The current and proposed data is as follows:

FB378 Fender Bracket:

GS131 Gear Sprocket:

The current total relevant cost (TRC) for FB378 is $9,966.00 and the current
cycle stock (CS) is 89.60. The TRC is the money that differs between
alternatives being considered and the CS refers to components or products
that are received in bulk by a downstream partner, gradually used up, and
then replenished again in bulk by the upstream partner. The TRC and the CS
have a direct relationship with the current order quantity, which is 120. If the
order quantity increases, the holding costs per year increases. However, if
the ordering cost decreases, the order quantity increases. The cost for
minimizing the total costs of inventory is known as the EOQ, or the economic
order rate. For FB378 the EOQ is 361.99. This is used to find proposed data
such as the new carrying cost and cycle stock, which help determine the new
TRC that can improve the companys efficiency. With the proposed data,

using EOQN we can find that with the recalculated cycle stock, annual
ordering cost, annual inventory carrying cost, and annual purchasing cost for
FB378, there can actually be a savings of $244.01.
Concurrently, the Total Relevant Cost of GS131 is $30,589.39 and the CS is
454.39. The order quantity is 850. Using the new calculated EOQN for GS131,
we can find the proposed cycle stock, annual ordering cost, annual inventory
carrying cost, and annual purchasing cost for GS131, and find a savings of
$540.77.
The EOQN demonstrates how Northcutt Bikes can get a lower inventory cost
and receive a bigger profit. The company would also not have to back order,
which further increases efficiency and reduce lead times.