Submitted by: - Group No 5 (Section C)

Pravin Shinde - 1527229

Prasidhi Pillai - 1527254
Anubhav Yadav - 1527204
Susan Pinto - 1527253
Mohammed Salim Malik 1527219
INVENTORY CONTROL SYSTEM
SG mainly used 2 separate computer systems for checking and managing the flow of inventory, one for
ordering and inventory tracking and other for manufacturing and warehousing operations.
After customers signed a contract, they could place orders directly online or through cutomers own
materials management software provided it was configured to SG.
SG followed a two-week order cycle and had a one week in transit time on most of its products, so if a
product was not available at a warehouse, a customer might have to wait as long as three weeks for the
shipment to arrive. This decreased the service level.
SG wanted to ensure customer responsiveness and tried to optimize delivery costs and for this, they had
to decide whether to wait for delivery, transfer inventory or make separate shipments from other
warehouses.
Currently stock was being delivered to 7 regional warehouses by a third party bulk shipper at a cost of
$0.40 per pound.
Inventory was delivered from the warehouse to customers by a pound delivery service called Winged feet.
INVENTORY CHALLENGES
1. The companys compensation program to achieve 99% customer fill rate made most of the warehouse
managers to keep higher inventory levels than required. The policy of 99% fill rate is a point to be
considered while 92% was the industry standard . As a result of which inventory holding /carrying costs,
shipping costs and transit costs all were high.
2. The companys inventory control policies to not to exceed 60 days supply are also regularly violated.
This also affected the companies plan for international expansions and companys target debt to capital
ratios are increased to 40%.
3. A centralized inventory monitoring and recording system at Waltham warehouse was not enough to
capture the inaccuracies caused by damaged, lost, and stolen goods, human errors and thus there was a
mismatch between computer records and actual inventory.

Evaluation for addressed challenges in inventory management: It will be conducted from mainly five
aspects: transportation costs, average inventory levels, fill rates and finally additional costs and benefits.
Transportation Costs: To conclude, as it is expected, when number of warehouses are decreased
transportation costs are increased as can be seen from the Table below. From the aspect of transportation
costs, GL option has the smallest cost amount.
8 warehouses

2 warehouses

1 warehouses

outsourcing

2706

2530

2516

2301

Average Inventory Levels: As shown in the Table below, as demand aggregates, in other words, number
of warehouse decreases, level of inventory decreases as it is expected. This is because, the greater the
degree of collaboration, the lower the uncertainty (standard deviation of the error or coefficient of
variation) of the demand model (Lecture 9, Slide 6). This implies that the money tied up in the inventory
decreases and this extra capital can be used in other areas, like expansion plans to international markets.
Total Overstock in 8 Warehouses

547.8593913

Total Overstock in 2 Warehouses

245.0949909

Total Overstock in 1 Warehouses

163.255314

For Outsourcing

No SG Managed Inventory

Fill Rate: Rather than using one fill-rate for over all products of the company, different rates for different
products can help the company in decreasing inventory costs related to, at least, for some of the products.
Owned Warehouse

Outsourcing

Erlenmeyer

Erlenmeyer

Griffin

Griffin

0.947521866 0.953206239 0.960290683 0.964165821

Additional Costs and Benefits: $10 Million can be avoided from Warehouse maintenance expenses if the
warehousing operations are outsourced to Global Logistics.
Implementing Proposed Policy Changes:
Greater enforcement by the warehouse managers of maintaining only sufficient inventories in the
warehouses to meet the companys target fill rate of 99%.
Merits: Targeting 99% fill rate will help the company to avoid 10% underage cost and 0.6% overage
costs. Reinforce market leadership by exceeding the market standard of 92% fill rate.

Risks: Maintaining a higher level of inventories will lead to the overage costs during demand fluctuations.
Discontinuation of the practice of allowing sales people to maintain trunk stock.
Merits: Efficient inventory management.
Risks: Discontinuation of trunk stock will disable the company from short notice deliveries.
Creation of daily reports and weekly summaries on inventory movements for every warehouse
Merits: With the usage of latest inventory management IT systems, daily reports and weekly reports can
be easily generated without any manual interventions. This will also help the company in reducing the
backorder.
Risks: Additional responsibility for the warehouse managers to keep the reports and summaries; however
this can be mitigated by the use of IT systems.
Periodic physical audits and control procedures for all warehouse stocks.
Merits: Demand and supply of the inventories across the warehouses can be easily monitored and
mismatch between computer records at the centralized warehouse and actual inventory can be avoided.
Risks: Without having efficient warehouse processes like the above steps, the physical audits alone will
not lead to any improvements in the long run, as the error will gradually creep into the system.
Changing Warehousing Functions
Centralizing the Warehousing Function: In this option, the company can maintain a centralized
warehouse near the manufacturing site near Waltham and serve the customer orders from all the regions.
Two centralized Warehouses: With two warehouses option, SG can think of pooling the order from east
and west separately by adding one warehouse in west in addition to the current warehouse in Waltham,
which is located in east. The demands in the central part can be pooled from these two warehouses
independently.
Maintaining the current eight Warehouses: With this option of eight warehouses, each warehouse will be
responding to the demand in its region independent of all the other warehouses.
Outsourcing the Warehousing functions: In this option, SG can outsource the distribution function to
Global Logistics (GL), who provides delivery services that included centralized warehousing in Atlanta.
The outsourcing seems to be the most efficient options due to Lowest inventory cost, Negligible
warehousing operation expenses, No SG managed Inventory, Better fill rate at lower cost, Insurance cost
borne by the Global Logistics
Creative Options
Restructuring Order-Fulfillment Steps

SG can think of shipping the inventories to the customer directly from other warehouses in case of
insufficient inventory at the original warehouse and thereby the company can avoid the transfer price
between the warehouses.
Plan ahead
Company should review its strategy in developing markets especially in Asia Pacific and Latin America
given the relative saturation of North American and European markets. SG should explore the possibility
of establishing their own sales offices and increase their dedicated representation in these developing
markets, something which the distributors will not be able to offer due to their vested interests.
Economies of Scale
SG is experiencing an increase in low-end competition and standardization in quality of laboratories
products, the company by outsourcing its non-core activities can concentrate on its main functions and
focus on understanding the market requirements.