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Scientific Glass, Inc.

: Inventory Management

Batch: PGCBM-21, 2012 Gro ! "o.: 2 Co rse: #ogistics an$ S !!ly Chain Management Professor%s "ame: &r. ' ( S )i*ayaraghavan St $y Center: Bangalore + C nningham ,oa$

SMS I& 110-21 1102./ 110-0/ 110200 110-0/ 110420

"ame Sa*ith PP ,a*eev "air "avin 1eg$e Praveen Ma$i!ati Sree$evi 3rishnam rthy ,ama5rishnan Parthasarathy

Contents
Contents...................................................................................................................................... 2 Introduction.................................................................................................................................. 3 Critical Issues faced by the Company..........................................................................................3 Addressing the Critical Issues......................................................................................................3 Changing Warehousing Functions............................................................................................4 Evaluating the ptions.......................................................................................................... 4 Implementing !roposed !olicy Changes".................................................................................# $ecommendations................................................................................................................... % Creative ptions.......................................................................................................................... % rder&Fulfillment 'teps......................................................................................% ptions..................................................................................) $estructuring

$edesigning the (ransportation

!lan ahead............................................................................................................................... * Economies of 'cale................................................................................................................ +, Appendi-.................................................................................................................................... +, $eferences................................................................................................................................ +,

Intro$ ction
Scientific Glass, Inc. (SG) established in 1992 is a midsize player in specialized glassware industry pr !iding specialized lab rat ry and research facilities. SG is a fast gr wing rganizati n with annual sales f "#$ milli n f r the year ending 2%%9. &he c mpanies e'isting mar(et regi ns include ) rth *merica, +ur pe, *sia ,acific and -est f the . rld. &he industry that SG perates f recasts a r bust annual sales gr wth f /0120. SG faces f rmidable large e3uipment pr !iders al ng with l w1end c mpetit rs which act has impediment t the c mpany4s gr wth. SG manufactures m re than /%%% different standardized pr ducts ranging fr m less than "/ t m re than "/%% and the c mpany decided t establish its direct sales f rce al ng ge graphical lines with eight territ ries in 5S and 6anada. SG als attempted t impr !e its fill rate and cust mer resp nse time by adding wareh uses apart fr m their largest wareh use ne't t its manufacturing plant in .altham, 7assachussets and ,h eni', *riz na. &he c mpany by the end f 2%%#, br ught nline si' ther leased wareh uses strategically situated in & r nt , Seattle, 8en!er, 8allas, *tlanta, and 6hicag .

Critical Iss es face$ 6y the Com!any


&he c mpany4s c mpensati n pr gram t achie!e 990 cust mer fill rate made m st f the wareh use managers t (eep higher in!ent ry le!els than re3uired. &he p licy f 990 fill rate is a p int t be c nsidered while 920 being the industry standard. 7 re !er, the c mpany4s in!ent ry c ntr l p licies t n t t e'ceed $% days supply are als regularly !i lated. *ll these aspects are affecting the c mpanies plan f r internati nal e'pansi ns and c mpany4s target debt t capital rati s are increased t 9%0.

* centralized in!ent ry m nit ring and rec rding system at .altham wareh use was n t en ugh t capture the inaccuracies caused by damaged, l st, and st len g ds, human err rs led t the mismatch between the c mputer generated rec rd and the actual in!ent ry. Salespe ple regularly as(ed wareh use managers t perf rm manual in!ent ry chec(s but the time re3uired t trac( it d wn, and the time and c st f the inter1 wareh use transfer, abs rbed much f the pr fit fr m the sale.

($$ressing the Critical Iss es


&he ab !e1menti ned issues can be addressed in tw ma: r ways. ;irst t restructure the l gistics and supply chain by changing the number f wareh uses functi ns and sec ndly by implementing the pr p sed p licy changes.

Changing 7areho sing 8 nctions


&he in!ent ry issues can be handled by changing wareh using functi ns and the pti ns gi!en in the case are< Centrali9ing the 7areho sing 8 nction< In this pti n, the c mpany can maintain a centralized wareh use near the manufacturing site near .altham and ser!e the cust mer rders fr m all the regi ns. ':o centrali9e$ 7areho ses< .ith tw wareh uses pti n, SG can thin( f p ling the rder fr m east and west separately by adding ne wareh use in west in additi n t the current wareh use in .altham, which is l cated in east. &he demands in the central part can be p led fr m these tw wareh uses independently. Maintaining the c rrent eight 7areho ses< .ith this pti n f eight wareh uses, each wareh use will be resp nding t the demand in its regi n independent f all the ther wareh uses. ; tso rcing the 7areho sing f nctions< In this pti n, SG can uts urce the distributi n functi n t Gl bal = gistics (G=), wh pr !ides deli!ery ser!ices that included centralized wareh using in *tlanta. >ased n the data pr !ided in +'hibit / ? 2 the transp rtati n c sts, a!erage in!ent ry le!els and the fill rate f r the pr p sed pti ns were as f ll ws<
.(he detailed calculations for the above evaluations are available in the embedded e-cel in Appendix/.

Evaluating the Options

'rans!ortation Costs
Transportation with 8 Warehouses Transportation with 2 Warehouses Transportation with 1 Warehouses Transportation with Outsourcing 2%,0.2%24,) 2#3,.344,42 2#+0.2*+)*4 2301.681047*

@The outsourcing transportation cost includes shipping from Waltham to Atlanta.

(verage Inventory #evels


Total Overstock in 8 Warehouses #4%.)#*3*+3

Total Overstock in 2 Warehouses Total Overstock in 1 Warehouses or Outsourcing

24#.,*4**,* +03.2##3+4 !o "# $anage% &nventor'

8ill ,ate
Owne% Warehouse (rlen)e'e r #ri**in ,.*4%#2+)0 ,.*#32,023 0 * Outsourcing (rlen)e'e r #ri**in 0.+602+068 0.+6416,82 3 1

($$itional Costs an$ Benefits "1% 7illi n can be a! ided fr m .areh use maintenance e'penses if the wareh using perati ns are uts urced t Gl bal = gistics.

Im!lementing Pro!ose$ Policy Changes:


1. Greater enf rcement by the wareh use managers f maintaining nly sufficient in!ent ries in the wareh uses t meet the c mpany4s target fill rate f 990. 7erits< o &argeting 990 fill rate will help the c mpany t a! id 1%0 underage c st and %.$0 !erage c sts. o -einf rce mar(et leadership by e'ceeding the mar(et standard f 920 fill rate. o Impr !e cust mer satisfacti n by reducing the unfilled rders. -is(s< o 7aintaining a higher le!el f in!ent ries will lead t the !erage c sts during demand fluctuati ns.

2. 8isc ntinuati n f the practice f all wing sales pe ple t maintain trun( st c(. 7erits< o +fficient in!ent ry management.

-is(s< o 8isc ntinuati n f trun( st c( will disable the c mpany fr m sh rt n tice deli!eries. o 8em ti!ating the sales managers by undermining their ability t maintain hard1w n cust mer acc unts.

/. 6reati n f daily rep rts and wee(ly summaries n in!ent ry m !ements f r e!ery wareh use

7erits< o .ith the usage f latest in!ent ry management I& systems, daily rep rts and wee(ly rep rts can be easily generated with ut any manual inter!enti ns. &his will als help the c mpany in reducing the bac( rder. o 7aintaining rep rts and summaries in e!ery wareh use will reduce the time and c st f inter1wareh use transfer. -is(s< o *dditi nal resp nsibility f r the wareh use managers t (eep the rep rts and summaries, h we!er this can be mitigated by the use f I& systems.

9. ,eri dic physical audits and c ntr l pr cedures f r all wareh use st c(s. 7erits< o 8emand and supply f the in!ent ries acr ss the wareh uses can be easily m nit red and mismatch between c mputer rec rds at the centralized wareh use and actual in!ent ry can be a! ided. -is(s< o .ith ut ha!ing efficient wareh use pr cesses li(e the ab !e steps, the physical audits al ne will n t lead t any impr !ements in the l ng run, as the err r will gradually creep int the system. o *dditi nal resp nsibility f r the wareh use managers.

,ecommen$ations
>ased n ur e!aluati n f this case the uts urcing seems t be the m st efficient pti ns due the f ll wing parameters< = west in!ent ry c st )egligible wareh using perati n e'penses. ) SG managed In!ent ry >etter fill rate at l wer c st Insurance c st b rne by the Gl bal = gistics

In additi n, by uts urcing wareh using, in!ent ry management and rder fulfillment, SG4s seni r managers w uld be able t f cus n increasing sales, understanding emerging cust mer needs, and de!el ping the ne't generati n f the firm4s pr ducts. Gi!en the l w t uch uts urcing m del, SG sh uld be able t e'pand easily in ther mar(ets by replicating the business m del. .ith all rder1fulfillment and in!ent ry1c ntr l, Gl bal = gistics pers nnel w uld administer functi ns, and uts urcing seems t be the c st effecti!e pti n, SG need n t g f r the implementi n f the pr p sed p licy changes.

Creative ;!tions
,estr ct ring ;r$er-8 lfillment Ste!s
SG can thin( f shipping the in!ent ries t the cust mer directly fr m ther wareh uses in case f insufficient in!ent ry at the riginal wareh use and thereby the c mpany can a! id the transfer price between the wareh uses. *s highlighted in the bel w fl wchart.

Redesigning the Transportation Options


In the e!ent SG ch ses t run all eight regi nal wareh uses acr ss ) rth *merica, they can thin( f redesigning the transp rtati n pti n by intr ducing 7il( -un transp rtati n and 8istributi n 6enters.

Plan ahea$
SG4s current mar(et f their annual sale is split between ) rth *merica (9%0), +ur pe (/%0), *sia ,acific regi n (2%0) and -est f the . rld (1%0) and theref re the f cus primarily has been n ) rth *merica with e'isting relati nship with distribut rs in +ur pe and *sia. 6 mpany sh uld re!iew its strategy in de!el ping mar(ets especially in *sia ,acific and =atin *merica gi!en the relati!e saturati n f ) rth *merican and +ur pean mar(ets. SG sh uld e'pl re the p ssibility f establishing their wn sales ffices and increase their dedicated representati n in these de!el ping mar(ets, s mething which the distribut rs will n t be able t ffer due t their !ested interests. *ls gi!en the fact that uts urcing their in!ent ry and distributi n management seems a !iable pti n, the c mpany sh uld access this pti n in the !erseas mar(ets t reduce their c sts.

Economies of Scale
SG is e'periencing an increase in l w1end c mpetiti n and standardizati n in 3uality f lab rat ries pr ducts, the c mpany by uts urcing its n n1c re acti!ities can c ncentrate n its main functi ns and f cus n understanding the mar(et re3uirements and needs f its cust mers. *s the c mpany is stri!ing t achie!e 990 fill rate, which will pr !ide the c mpany a c mpetiti!e ad!antage and the c st efficiencies achie!ed can be rein!ested t gr w the ec n mies f scale that acts as barriers f r their c mpetit rs.

(!!en$i<
SG Calculations.xls

,eferences
Scientific Glass Inc. A 6ase Study Supply 6hain 7anagement1 Strategy, ,lanning and Bperati n (9th +diti n) by Sunil 6h pra, ,eter 7eindl ? 8.C Dalra 6 urse 7aterial and ,resentati n slides by 8r. & * S Ci:ayaragha!an