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Scientific Glass Inc Inventory Management Case Solution
The problems faced by Scientific Glass stems from a result of senior management's less attention towards inventory management. On the other hand, management focuses more on increasing sales and customer satisfaction. One of the problems faced by SG is the amount of capital tied up in inventory that is surging each year. Moreover, SG recently reaches its debt-to-capital ratio target of 40%. It indicates that SG will not be able to rely on debt financing for further expansion. As a result, SG’s plan to expand in the international market seems in trouble. Moreover, SG is facing immense pressure from the competitive environment in which it operates. Though, it enjoys the benefit of being a pioneer in introducing innovation in laboratory equipment for a large amount of time. However, other competitors followed the same suit and thus pose a direct threat to SG. Moreover, SG faces threats from new entrants and also the increase in the number of quality-control laboratories overseas. Currently, the service level of SG is just above the industry level. Since SG wants to capture a major chunk of the market for laboratory equipment. It needs to increase its current service level by a substantial amount so that it becomes visible to the customers and other industry players. Furthermore, SG currently faces a problem of tight production capacity for last two years. The current equipment is worn-out and is unable to meet the growing sales requirement of SG. One of the problems arises in the inventory control system. Currently, improper tracking of warehouse transfers, opportunities for human error, inaccurate recording of damaged, lost or stolen goods all leads to inaccurate input. Thus, there exists a discrepancy in the inventory record and actual inventory. All of these problems mentioned above are reducing the effectiveness of SG.
Following questions are answered in this case study solution
What are the problems facing Scientific Glass (SG) in January 2010?
How do SG’s problems illustrate the relationship between the number of warehouses and inventory levels?
What alternatives does SG have for dealing with the inventory problems? How would you rank these alternatives in terms of their effectiveness?
What actions should Ava Beane propose to Eric Gregory and Melissa Hayes?
Case Analysis for Scientific Glass Inc Inventory Management
2. How do SG’s problems illustrate the relationship between the number of warehouses and inventory levels?
The problems identified in the case shows a clear relationship between the number of warehouses SG has and its inventory level. Currently, it shows an increasing function i.e. the more the number of warehouses, the higher the inventory level. It is because, to respond to customers effectively, it is important to stock each of the warehouses to an optimal level so that no stock out could occur. Moreover, to reach a service level of 99% most warehouse managers increased the level of inventory being held. Before 2008, SG has only one warehouse apart from Waltham located outside of Phoenix, Arizona. This warehouse was smaller than Waltham’s warehouse, and it serves Arizona and central and south California. By the end of 2008, SG increases six other warehouses in different locations each of which serves a separate sales territory. Now, SG did not have the benefit of one or two warehouses where it could hold a small quantity of inventory. To properly maintain each warehouse in eight different locations, it is vital to have optimal inventory level in each warehouse. This results in inventory levels hiking up in 2009. It is evident from the comparative balance sheets for the two years. In 2008, SG held an inventory of amount $4.9 million. This amount rises significantly with the increase in the number of warehouses. By the end of 2009, SG holds an inventory of $8.7 million. It is approximately 77% higher than that of 2008. The entire increase in inventory is not a result of increasing warehouses. However, as the case identifies, SG has the policy of “trunk stock”, i.e. salespeople are allowed to have $10000 inventory with them in their cars, homes, etc. It was done to respond to customers in a short notice. Thus, a large number of salespeople would drive up inventory levels.
3. What alternatives does SG have for dealing with the inventory problems? How would you rank these alternatives in terms of their effectiveness?
There are proposed policy changes recommended by senior management that could help in reducing inventory management issues. These proposed changes include implementing better inventory controls such as frequent physical audits and the creation of daily reports on inventory. These changes also involve the discontinuation of “trunk stock”. These changes, however, are not popular with sales staff as they feel they may lose out on some hard-won customers. Moreover, these changes focus on better inventory management that will help in saving a minimal amount of money whereas they did not address warehouse cost issues. Therefore, Beane worked out other alternatives that could help in overcoming inventory problems that could ultimately help in saving money. One of the alternatives that Beane identifies is to centralize the warehouse i.e. to have one warehouse that could meet the demand for the North American region. In this way, SG will be able to save costs of maintaining warehouses. The cost of each warehouse is approximately 15% of the total inventory cost. Another alternative is to outsource warehouse facility. Global Logistics provides delivery service along with warehousing facilities in Atlanta. It would allow SG to save the cost of maintaining warehouses, and also it will relieve SG management from inventory management and order fulfillment. On the other hand, it could focus more on sales and customer satisfaction. However, to outsource warehousing facilities, SG needs to deliver all goods first to Atlanta. The preliminary analysis shows that Global logistics at first is a slightly expensive option than other options available. In terms of effectiveness, outsourcing warehousing facility is a better option because it will relieve the management from dealing with inventory issues. The cost savings will overcome the slight increase in cost on closing existing regional warehouses. Therefore, an outsourcing option is more suited for the current scenario in which SG operates.
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