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Case Study Analysis On Scientific Glass Inventory Management
Case Study Analysis On Scientific Glass Inventory Management
Case Study Analysis On Scientific Glass Inventory Management
INVENTORY MANAGEMENT
Problem Statement
Faced with inventory challenges, senior management has to take important decisions!
What are the merits and risks of implementing the proposed policy changes, of reverting back of fewer
warehouses and of centralizing and outsourcing the inventory to Global Logistics?
Other creative options to consider?
Company Background
• Scientific Glass, Inc. (SG) established in 1992 was a privately held company that provided specialized glassware for
laboratory and research facilities.
• SG is a fast growing organization with annual sales of $86 million for the year ending 2009.
• Twin goals of continuous sales growth and customer satisfaction.
• Manufactures more than 3000 different standardized products, with few products that are representatives of the
type of products sold by SG.
• The market regions include North America, Europe, Asia Pacific and Rest of the World.
• Building a dedicated domestic salesforce: The company established its direct sales force along geographical lines
with eight territories in US and Canada.
• There are several competitors for the company ranging from large providers to small scale ones.
• Increasing customer service levels : Initiated this effort in 2008, using a combination of forecasting demand more
accurately improving customer service levels
• Adding warehouses : SG also attempted to improve customer response time by adding regional warehouses. The
largest warehouse was next to its manufacturing plant in Waltham, Massachusetts. Prior to 2008, its only
warehouse was located outside of Phoenix, Arizona. By the end of 2008, the company brought online six other
leased warehouses strategically situated in Toronto, Seattle, Denver, Dallas, Atlanta, and Chicago.
• Expansion Plans : SG committed to increasing its international footprint in 2010 by securing a distributor in Latin
America and adding a second distributor in Europe and Asia Pacific.
Major Issues faced by the company
1. Inventory Challenges
the inventory issues can be handled by changing warehousing functions and the recommendations provided are:
• Separate warehouses in each region(8 warehouses):Added warehouses such that customer demand in each sales
region realized separately and was fulfilled entirely by warehouse in that region. Each warehouse responded to
demand in its region independent of all other warehouses and handled 1/8th of SG’s customer orders.
• 2 warehouses : Demand in the east could be pooled and demand in the west could be pooled.
• Centralizing the warehouse: Single warehouse- All the demands are pooled.
• Outsourcing to GL logistics
Based on Exhibit 5,
Ordering Cost = order cost per unit * weekly demand
14% Holding cost = 14/100 * Unit cost
Flask-
Griffin Beaker Erlenmeyer
8 2 1 8 2 1
EOQ = sqt(2DS/H)
=sqrt(2*Annual Qty Demanded*Ordering Cost/(14% Holding cost))
Griffin Erienmeyer
8WH 2WH 1WH 8WH 2WH 1WH
EOQ 234.7 469.3 663.7 93.0 186.0 263.1
Average 117.3 234.6 331.8 46.5 93.0 131.6
Inventory
Annual 65.06 130.08 183.96 29.69 59.38 83.98
Inventory
Holding Cost
($)
No. Of orders 48 24 17 36.4 18.2 12.9
per year
Annual 65.06 130.08 183.96 29.69 59.38 83.98
Ordering
Cost($)
Total Annual 130.11 260.17 367.93 59.38 118.77 167.97
Cost($)
Multiplying by 8,2 for 8 warehouses and 2 warehouses respectively.
Griffin Erienmeyer
8WH 2WH 1WH 8WH 2WH 1WH
Annual 624.39 312.19 220.75 35.62 71.25 100.76
Inventory
Holding Cost
($)
Safety Stock
Z × σLT × D avg.
Z is the desired service level, σLT is the standard deviation of lead time, and D avg is demand average.
Griffin Erienmeyer
8WH 2WH 1WH 8WH 2WH 1WH
Avg. Biweekly demand(Given) 54.2 216.7 433.4 16.3 65.2 130.3
Biweekly Standard Deviation(given) 21.4 38.3 51 10.9 19.5 26
Desired service level(given) 99% 99% 99% 99% 99% 99%
Reorder Cycle Weekly Weekly Weekly Weekly Weekly Weekly
Lead Time 5 days 5 days 5 days 5 days 5 days 5 days
Working days per year (Assumed) 365 days 365 days 365 days 365 days 365 days 365 days
ROP 19.4 77.4 154.8 5.8 23.3 46.5
99% (z value) service level 2.33 2.33 2.33 2.33 2.33 2.33
Demand during 5 days lead time 19.4 77.4 154.8 5.8 23.3 46.5
S.D during 5 days lead time 7.6 13.7 18.2 3.9 7.0 9.3
Safety stock 17.8 31.9 42.4 9.1 16.2 21.6
ROP with safety stock 37.2 109.3 197.2 14.9 39.5 68.2
Multiplying by 8,2 for 8 warehouses and 2 warehouses respectively.
Griffin Erlenmeyer
Demand during lead time of 5 days 1238.9 309.6 154.8 372.6 93.1 46.5
Standard deviation during lead time 61.1 27.4 18.2 31.1 13.9 9.3
ROP with Safety stock 297.3 218.5 197.2 119.1 79.0 68.2
Merits & Risks of proposed policy changes
Greater enforcement by the warehouse managers of maintaining only sufficient inventories in the warehouses to
meet the company’s target fill rate of 99%.
Merits:
Improve customer response time and thus decrease the underage and overage costs.
Be a market leader by exceeding the market standard of 92% .
Risks:
Targeting(99%) is very high in this case. Hence the chance of overstock.
Solution: Increase target level slowly. First to say 95 or 96% and then once stable, increase it.
Merits:
Reduce time and cost of transfer to other warehouses.
Risks:
Maintaining physical records is time consuming.
Solution: As mentioned in the above point, use of IT systems could reduce the time and effort of warehouse
managers.
Periodic physical audits and control procedures for all warehouse stocks.
Merits:
Any mismatch of inventory/overstock/understock could be avoided
Risks:
As mentioned above, its an additional responsibility for warehouse managers unless machines are used.
Other Creative Options
• Centralize the inventory system – The system should let them know the available inventory and also if gone out of
stock
• Reduce the number of warehouses/outsource
• Warehouse managers to create weekly report on movement of inventory
• All the data w.r.t should be shared across all warehouses including Beane.
• Do physical audits intermittently
• Instead of warehouse to warehouse movement of inventory in case of out of stock in a warehouse, SG can think of
directly delivering the product to customer from available warehouse. This would reduce the transportation cost as
well.
• Pool its inventory to reduce SD of demand
• This would reduce the safety stock that they have to hold.