Scientific Glass Case

In the case study of Scientific Glass case, the production, distribution and gunstock management corpses of the companion Scientific Glass case have been discussed. Scientific Glass Inc, is a mid-sized company which was growing at a fast pace. The company is trying to purport its inventory management issues as it is pulley-block a lot of flexing capital hindering the growth and expansion of the organization.This case study critically analytic thinking the various alternatives for improving the inventory management system. The proposed alternatives have been evaluated and a final conclusion has been drawn. The case analysis has been divided into 3 atoms. In the first section the issues that the company is facing have been highlighted. In the second section, the issues have been analysed and finally in the last section the various proposed alternatives have been discussed thus arriving at a conclusion.IssuesThe company was facing some serious inventory and financial issues whic h was hindering the growth and expansion of the company. 1) The executives had identified a disturbing trend. The inventory balances were increasing substantially, which was blocking the capital required for the growth of the company. 2) The company has exceeded its rank debt to capital ratio of 40%. 3) The company was cerebratesing on increasing the guest suffer rank to 99% and maintain it at the expense of high inventory levels and thus exhausting the financial resources. 4) The rules with reckon to maximum inventory levels were violated by the store managers and gross revenue executives, but no strict action was taken in influence to prevent it.Analysis of the issuesIn the year 2008, the company initiated an effort to improve the customer fill counts by placing to a greater extent products closer to large customer concentrations by increasing the number of warehouses ope deemd by the company. The fill wander of the company at the magazine was 93% and the company aimed t o increase it to 99%. However, as a result, the warehouse managers began ordering more(prenominal) than the requirement in order to realize fulfilment of the target for their region. This action increased the inventory levels to a large extent thus blocking the capital and increasing the overage be. The companys warehouse internet had been expanded in order to expedite the delivery time.Hence, inventory levels had to be maintained in to each one of these warehouses to satisfy the companys fill rate expectation. Although the companys policy mandated that no warehouse could maintain more than a 60 daylight furnish, the policy was often violated. Moreover, the trunk stock allocated to singular sales representatives counted against this constitutional. In effect, the employees were not working purely in the interest of the organization. Rather the warehouse managers were more concerned how to maintain the high delivery levels of their profess warehouse. And the sales executiv es did not want to bring down their trunk stock levels.Hence, the bigger picture of efficient inventory management and effective funds work while maintaining a high fill rate was being lost. Hence, it was imperative for the company to modify its policies of inventory management and be stricter in order to ensure that they are being adhered to. The company too needs to work upon strategies to reduce the freight and delivery costs with forbidden bringing down its fill rate.Alternative OptionsAs can be observed, the company never emphasized too much on reducing the inventory costs until it started facing financial crunch inhibiting its expansion plans. Prior to that, it was more concerned with increased sales and customer satisfaction. However, the executives realized they will neither be able to increase sales nor maintain customer fill rate without addressing the inventory issues. Hence, they came up with some new ideas after a lot of brainstorming. The distribution network had to be modified to make the inventory management system more effective. This could be achieved in primarily two ways. Change in the warehouse structureChange in the existing policies or implementation of new ones Warehouse StructureIn order to change the warehouse structure the options of centralization, outsourcing were con postred as opposed to the existing structure of decentralization. Decentralized Structure with 8 warehouses No changes would be required and the regional warehouses would supply their respective territories except in case of stock outs. Centralization with one warehouse Centralize the North American warehousing with one warehouse in Waltham by closing down the regional warehouses.In this way, the inventory requirements could be pooled to meet the demand. Centralization with two warehouses The demands of the West and the East could be pooled respectively and supplied from warehouses in each of these regions. Outsourcing Outsourcing the inventory function to Global L ogistics who would be responsible for warehousing, inventory management, and order fulfilment (including picking, packing and shipping). This would enable the company employees to focus more on sales and expansion of the company while ensuring that the inventory management is in able hands.Policy ChangesSome policy changes were proposed as an out set about of the brainstorming session Sufficient inventories only to meet customer fill rate of 99% and avoid surplus inventory Discontinuation of trunk stock maintenance by sales executives Daily reports and periodic summaries of inventory movement for every warehouse Periodic physical audits and control procedures for all warehouse stocksEvaluation of the Alternative OptionsThe alternative options proposed can be evaluated on the quest grounds Inventory Levels The inventory levels to be maintained should be sufficient to abide by the policy of 99% customer fill rate. There is no mention of ordering cost, hence that need not be taken in to account while determining the inventory level. Since each of the warehouse managers would prefer to bread and butter an extra buffer, the inventory level increases with the increase in the number of warehouses. Hence, with respect to this parameter, the lesser the number of warehouses, the lower is the cost. Hence, Centralization and Outsourcing can be considered as unspoiled options.Delivery Time The Company had an efficient delivery system where the products were ready for shipment within 3 days except in the case of stock outs. This was relevant for 1 warehouse, 2 warehouses or 8 warehouses. After that, the Winged Fleet ensured shipment to the client within 3 days at nigh. However, the new shipment company being considered Global Logistics offered an additional facility of 1 day premium delivery apart from the 3 day regular shipment. This facility could be considered as a differentiating factor and provide and added advantage to the company. This option would also include 2 warehouses one in Waltham and the other in Atlanta, thus ensuring borderline stock outs.Operating Costs The operations manager suggested that the company would need to spend around $10M to replace the worn out equipment and produce stock sufficient luxuriant to satisfy the future sales growth. This $10M can be assumed to be distributed across the 8 warehouses. Hence, with the decrease in the number of warehouses, the expected cost would come down. Hence, centralization or outsourcing would be a better option in this respect. Moreover, with outsourcing the sales force also need not be maintained by the company and hence the cost of sales force will be nil. FillRate The Company has a policy to maintain 99% customer fill rate which is much higher than the industry average of 92%.SG is trying to achieve this at the cost of blocked working capital, thus inhibiting the growth and expansion. However, SG can work towards bringing down the FillRate without compromising on the customer sa tisfaction levels. Given the underage and overage cost as 10% of gross margin and .6 % of whole cost respectively he FillRate for the two typical products has been calculated for in house warehousing and outsourcing. From the result it can be concluded that the FillRate on outsourcing inventory management to Global Logistics is higher than in-house inventory management.These figures indicate two things. Firstly, if the company is ready to lower the fill rate of 99%, the outsourcing fill rate of 96% is higher than the current structure. This would lead to higher inventory levels and thus higher costs. On the other hand, if the company sticks to its 99%, the inventory cost on outsourcing would be lower. Additionally the company can opt for different fill rates for different products and thereby reduce the inventory cost for some of its products.Shipment cost The total shipping cost on outsourcing inventory management to Global Logistics turns out to be $26.25. If the company went with the current system of decentralization with 8 warehouses, the cost turns out to be $20.60. If SG centralizes warehousing with one warehouse in Waltham and uses Winged Fleet as its shipment company, the cost turns out to be $23.60. From this perspective, GL seems to be a more expensive option and decentralization seems to be the best option.Miscellaneous If the company outsourced its inventory management to Global Logistics, the companys senior managers would be able to focus more on increasing sales, understanding emerging customer needs, and developing the next generation of the firms products. Additionally the company need not be concerned about the warehouse managers tendency of maintaining more than 60 day supply, as the warehouse management would be under GL. However, the negative side of outsourcing is that the goods have to be shipped from Waltham to Atlanta before delivery. As far as the policy changes are concerned, the sales executives should be allowed to maintain trunk stock as it might decrease the time responsiveness.ConclusionFrom the above parameters, outsourcing and central warehousing are favourable options in some cases, where as decentralizing is favourable in others. With respect to the inventory levels and operating costs, centralization is a very good alternative. This includes both internal warehousing and outsourcing. However, if we look at the delivery time, outsourcing gives an added advantage with the 1 day premium shipment facility provided by the Global Logistics. The Fill Rate factor favours outsourcing only in case the company sticks to the policy of 99%.The outsourcing to GL, also provides the advantage in quantitative terms such as additional time for the senior executives to concentrate on growth and expansion rather than be involved in the nitty gritties of inventory management. The shipment cost decreases with the increase in the number of warehouses, i.e. with decentralization compared to outsourcing or centralization. Fr om the above points, it can be observed that most of the parameters are in favour of outsourcing the inventory management to Global Logistics.In addition to the above discussed alternative of centralization, decentralization and outsourcing, SG can also consider the option of appointing constituted distributors withgood infrastructure at a zonal level. This would relieve the company of managing regional level wareshouses, at the same time reducing the operating costs of warehouse management. The company would be able to dedicate additional funds for expansion. The distributors would not stock additional inventory than required to meet the 99% customer fill rate, as it would block its own capital. Being a regional player, the distributors would have better control and knowledge of the market.