Scientific Glass, Inc.

:
Inventory Management
Batch: PGCBM-21, 2012
Gro! "o.: 2
Corse: #ogistics an$ S!!ly Chain Management
Professor%s "ame: &r. ' ( S )i*ayaraghavan
St$y Center: Bangalore + Cnningham ,oa$
SMS I& "ame
110-21 Sa*ith PP
1102./ ,a*eev "air
110-0/ "avin 1eg$e
110200 Praveen Ma$i!ati
110-0/ Sree$evi 3rishnamrthy
110420 ,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.......................................................................................................................... %
$estructuring rder&Fulfillment 'teps......................................................................................%
$edesigning the (ransportation ptions..................................................................................)
!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 labratry and research facilities. SG is a fast grwing
rganizatin with annual sales f "#$ millin fr the year ending 2%%9. &he cmpanies e'isting
mar(et regins include )rth *merica, +urpe, *sia ,acific and -est f the .rld. &he
industry that SG perates frecasts a rbust annual sales grwth f /0120. SG faces frmidable
large e3uipment pr!iders alng with lw1end cmpetitrs which act has impediment t the
cmpany4s grwth.
SG manufactures mre than /%%% different standardized prducts ranging frm less than "/ t
mre than "/%% and the cmpany decided t establish its direct sales frce alng gegraphical
lines with eight territries in 5S and 6anada. SG als attempted t impr!e its fill rate and
custmer respnse time by adding warehuses apart frm their largest warehuse ne't t its
manufacturing plant in .altham, 7assachussets and ,heni', *rizna. &he cmpany by the end
f 2%%#, brught nline si' ther leased warehuses strategically situated in &rnt, Seattle,
8en!er, 8allas, *tlanta, and 6hicag.
Critical Isses face$ 6y the Com!any
&he cmpany4s cmpensatin prgram t achie!e 990 custmer fill rate made mst f
the warehuse managers t (eep higher in!entry le!els than re3uired. &he plicy f
990 fill rate is a pint t be cnsidered while 920 being the industry standard.
7re!er, the cmpany4s in!entry cntrl plicies t nt t e'ceed $% days supply are
als regularly !ilated. *ll these aspects are affecting the cmpanies plan fr
internatinal e'pansins and cmpany4s target debt t capital ratis are increased t 9%0.
* centralized in!entry mnitring and recrding system at .altham warehuse was nt
enugh t capture the inaccuracies caused by damaged, lst, and stlen gds, human
errrs led t the mismatch between the cmputer generated recrd and the actual
in!entry. Salespeple regularly as(ed warehuse managers t perfrm manual in!entry
chec(s but the time re3uired t trac( it dwn, and the time and cst f the inter1
warehuse transfer, absrbed much f the prfit frm the sale.
($$ressing the Critical Isses
&he ab!e1mentined issues can be addressed in tw ma:r ways. ;irst t restructure the
lgistics and supply chain by changing the number f warehuses functins and secndly by
implementing the prpsed plicy changes.
Changing 7arehosing 8nctions
&he in!entry issues can be handled by changing warehusing functins and the ptins gi!en in
the case are<
Centrali9ing the 7arehosing 8nction< In this ptin, the cmpany can maintain a
centralized warehuse near the manufacturing site near .altham and ser!e the custmer
rders frm all the regins.
':o centrali9e$ 7arehoses< .ith tw warehuses ptin, SG can thin( f pling the
rder frm east and west separately by adding ne warehuse in west in additin t the
current warehuse in .altham, which is lcated in east. &he demands in the central part
can be pled frm these tw warehuses independently.
Maintaining the crrent eight 7arehoses< .ith this ptin f eight warehuses, each
warehuse will be respnding t the demand in its regin independent f all the ther
warehuses.
;tsorcing the 7arehosing fnctions< In this ptin, SG can utsurce the
distributin functin t Glbal =gistics (G=), wh pr!ides deli!ery ser!ices that
included centralized warehusing in *tlanta.
Evaluating the Options
>ased n the data pr!ided in +'hibit / ? 2 the transprtatin csts, a!erage in!entry
le!els and the fill rate fr the prpsed ptins were as fllws<
.(he detailed calculations for the above evaluations are available in the embedded e-cel
in Appendix/.
'rans!ortation Costs
Transportation with 8 Warehouses 2%,0.2%24,)
Transportation with 2 Warehouses 2#3,.344,42
Transportation with 1 Warehouses 2#+0.2*+)*4
Transportation with Outsourcing 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 24#.,*4**,*
Total Overstock in 1 Warehouses +03.2##3+4
or Outsourcing !o "# $anage% &nventor'
8ill ,ate
Owne% Warehouse Outsourcing
(rlen)e'e
r #ri**in
(rlen)e'e
r #ri**in
,.*4%#2+)0
0
,.*#32,023
*
0.+602+068
3
0.+6416,82
1
($$itional Costs an$ Benefits
"1% 7illin can be a!ided frm .arehuse maintenance e'penses if the warehusing
peratins are utsurced t Glbal =gistics.
Im!lementing Pro!ose$ Policy Changes:
1. Greater enfrcement by the warehuse managers f maintaining nly sufficient in!entries in
the warehuses t meet the cmpany4s target fill rate f 990.
7erits<
o &argeting 990 fill rate will help the cmpany t a!id 1%0 underage cst and %.$0
!erage csts.
o -einfrce mar(et leadership by e'ceeding the mar(et standard f 920 fill rate.
o Impr!e custmer satisfactin by reducing the unfilled rders.
-is(s<
o 7aintaining a higher le!el f in!entries will lead t the !erage csts during
demand fluctuatins.
2. 8iscntinuatin f the practice f allwing sales peple t maintain trun( stc(.
7erits<
o +fficient in!entry management.
-is(s<
o 8iscntinuatin f trun( stc( will disable the cmpany frm shrt ntice deli!eries.
o 8emti!ating the sales managers by undermining their ability t maintain hard1wn
custmer accunts.
/. 6reatin f daily reprts and wee(ly summaries n in!entry m!ements fr e!ery
warehuse
7erits<
o .ith the usage f latest in!entry management I& systems, daily reprts and wee(ly
reprts can be easily generated withut any manual inter!entins. &his will als help
the cmpany in reducing the bac(rder.
o 7aintaining reprts and summaries in e!ery warehuse will reduce the time and cst
f inter1warehuse transfer.
-is(s<
o *dditinal respnsibility fr the warehuse managers t (eep the reprts and
summaries, hwe!er this can be mitigated by the use f I& systems.
9. ,eridic physical audits and cntrl prcedures fr all warehuse stc(s.
7erits<
o 8emand and supply f the in!entries acrss the warehuses can be easily mnitred
and mismatch between cmputer recrds at the centralized warehuse and actual
in!entry can be a!ided.
-is(s<
o .ithut ha!ing efficient warehuse prcesses li(e the ab!e steps, the physical audits
alne will nt lead t any impr!ements in the lng run, as the errr will gradually
creep int the system.
o *dditinal respnsibility fr the warehuse managers.
,ecommen$ations
>ased n ur e!aluatin f this case the utsurcing seems t be the mst efficient ptins due
the fllwing parameters<
=west in!entry cst
)egligible warehusing peratin e'penses.
) SG managed In!entry
>etter fill rate at lwer cst
Insurance cst brne by the Glbal =gistics
In additin, by utsurcing warehusing, in!entry management and rder fulfillment, SG4s
senir managers wuld be able t fcus n increasing sales, understanding emerging custmer
needs, and de!elping the ne't generatin f the firm4s prducts.
Gi!en the lw tuch utsurcing mdel, SG shuld be able t e'pand easily in ther mar(ets by
replicating the business mdel.
.ith all rder1fulfillment and in!entry1cntrl, Glbal =gistics persnnel wuld administer
functins, and utsurcing seems t be the cst effecti!e ptin, SG need nt g fr the
implementin f the prpsed plicy changes.
Creative ;!tions
,estrctring ;r$er-8lfillment Ste!s
SG can thin( f shipping the in!entries t the custmer directly frm ther warehuses in case
f insufficient in!entry at the riginal warehuse and thereby the cmpany can a!id the
transfer price between the warehuses. *s highlighted in the belw flwchart.
Redesigning the Transportation Options
In the e!ent SG chses t run all eight reginal warehuses acrss )rth *merica, they can
thin( f redesigning the transprtatin ptin by intrducing 7il( -un transprtatin and
8istributin 6enters.
Plan ahea$
SG4s current mar(et f their annual sale is split between )rth *merica (9%0), +urpe (/%0),
*sia ,acific regin (2%0) and -est f the .rld (1%0) and therefre the fcus primarily has
been n )rth *merica with e'isting relatinship with distributrs in +urpe and *sia.
6mpany shuld re!iew its strategy in de!elping mar(ets especially in *sia ,acific and =atin
*merica gi!en the relati!e saturatin f )rth *merican and +urpean mar(ets. SG shuld
e'plre the pssibility f establishing their wn sales ffices and increase their dedicated
representatin in these de!elping mar(ets, smething which the distributrs will nt be able t
ffer due t their !ested interests. *ls gi!en the fact that utsurcing their in!entry and
distributin management seems a !iable ptin, the cmpany shuld access this ptin in the
!erseas mar(ets t reduce their csts.
Economies of Scale
SG is e'periencing an increase in lw1end cmpetitin and standardizatin in 3uality f
labratries prducts, the cmpany by utsurcing its nn1cre acti!ities can cncentrate n its
main functins and fcus n understanding the mar(et re3uirements and needs f its custmers.
*s the cmpany is stri!ing t achie!e 990 fill rate, which will pr!ide the cmpany a
cmpetiti!e ad!antage and the cst efficiencies achie!ed can be rein!ested t grw the
ecnmies f scale that acts as barriers fr their cmpetitrs.
(!!en$i<
SG Calculations. xls
,eferences
Scientific Glass Inc. A 6ase Study
Supply 6hain 7anagement1 Strategy, ,lanning and Bperatin (9th +ditin) by Sunil 6hpra,
,eter 7eindl ? 8.C Dalra
6urse 7aterial and ,resentatin slides by 8r. & * S Ci:ayaragha!an