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    Scientific Glass Final

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    leo fricke
    Scientific Glass, Inc. is facing increasing inventory levels that are tying up capital needed for international expansion. This report evaluates alternative inventory strategies using two years of inventory data to identify potential savings. Centralizing warehouses and outsourcing inventory management to Global Logistics (Option 2) is identified as providing the greatest savings of 72% compared to the baseline by significantly reducing safety stock levels. Option 2 is recommended for Scientific Glass to tackle their inventory issues and free up capital for growth.

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    Scientific Glass Final

    Uploaded by

    leo fricke
    718 views2 pages
    Scientific Glass, Inc. is facing increasing inventory levels that are tying up capital needed for international expansion. This report evaluates alternative inventory strategies using two years of inventory data to identify potential savings. Centralizing warehouses and outsourcing inventory management to Global Logistics (Option 2) is identified as providing the greatest savings of 72% compared to the baseline by significantly reducing safety stock levels. Option 2 is recommended for Scientific Glass to tackle their inventory issues and free up capital for growth.

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    Scientific Glass, Inc. is facing increasing inventory levels that are tying up capital needed for international expansion. This report evaluates alternative inventory strategies using two years of inventory data to identify potential savings. Centralizing warehouses and outsourcing inventory management to Global Logistics (Option 2) is identified as providing the greatest savings of 72% compared to the baseline by significantly reducing safety stock levels. Option 2 is recommended for Scientific Glass to tackle their inventory issues and free up capital for growth.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    718 views2 pages

    Scientific Glass Final

    Uploaded by

    leo fricke
    Scientific Glass, Inc. is facing increasing inventory levels that are tying up capital needed for international expansion. This report evaluates alternative inventory strategies using two years of inventory data to identify potential savings. Centralizing warehouses and outsourcing inventory management to Global Logistics (Option 2) is identified as providing the greatest savings of 72% compared to the baseline by significantly reducing safety stock levels. Option 2 is recommended for Scientific Glass to tackle their inventory issues and free up capital for growth.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Operations Management

    Group Assignment 2

    Scientific Glass, Inc : Inventory Management

    Group:

    Leonhard Fricke
    Paul Hannemann
    Ioannis Gounaris
    Shruti Vasudev

    Monday, 14th December 2015

    Executive Summary


    The Scientific Glass, Inc (SG) is a midsized company in the specialized glassware industry producing for and
    supplying to research facilities and specialized laboratories in its market regions, mainly North America. Currently
    the company is facing an increase in inventory level balances resulting in too much tied up capital in inventory
    preventing the company from using its capital towards international expansion. This report aims to evaluate other
    inventory operating options on the basis of SG's inventory management information from the last two years in order
    to highlight potential savings by modifying the companys inventory strategy.

    Moving towards its expansion, SG forecasts a 20 percent growth in its sales in 2010 and estimates the
    investment expenses to be around USD 12M. By using the financial data from 2008 and 2009 net sales, inventory
    and owners equity were forecasted for 2010, assuming that relative changes in the income statement and balance
    sheet can be benchmarked against them. Executing this forecasting method leads to obtaining an estimated external
    funding requirement of USD 14.7M for continuing its operations in 2010, while inventory increases by around USD
    1.7M, due to an inefficient inventory strategy.1

    This issue can be tackled by restructuring the logistics and supply chain by changing the number of warehouses
    functions or by implementing a policy change. Before comparing different alternatives for dealing with the
    inventory problems of SG, a target service level of 99% is set as a baseline. In order to solve SG's inventory related
    issues three available alternatives are evaluated using available data for the two representative products: Griffin and
    Erlenmeyer. The following alternatives are available to SG:
    (1) Centralize warehousing by having one owned warehouse and use partner (Winged Fleet) for deliveries
    (2) Centralize warehousing by outsourcing order fulfillment and inventory management to Global Logistics
    (3) Use a previously calculated optimal service level for each product and warehouse.

    The evaluation of mentioned alternatives was conducted from accounting the inventory costs as the only
    aspect, based on computing the Inventory Policy Level (IPL) and determining the Total Average Inventory (TAI).
    The IPL as well as the composition of TAI can be seen in Figure 1. It is striking that safety stock decreases
    significantly by centralizing warehouses, leading to more profitability in the long run.2
    Inventory Policy
    * per Warehouse

    142.3*

    55.6*

    795.4

    269.6

    795.4

    269.6

    126.5*

    46.8*

    Option(3() E

    1000
    750
    500
    250
    0

    Basline() G

    Basline() E

    Option(1() G

    Option(1() E

    Option(2() G

    Option(2()E

    Option(3()G

    In)transit(stock

    217

    65

    217

    65

    217

    65

    217

    65

    Safety( stock

    488

    249

    145

    74

    145

    74

    362

    179

    Cycle(Stock

    217

    65

    217

    65

    217

    65

    217

    65

    Figure 1: Optimal inventory policy level and total average inventory

    Finally, savings due to decreased inventory levels achieved by each option were computed, whereby Options 1,
    2 and 3 forecasted savings of 42%, 72% and 16% respectively. Therefore, if Scientific Glass Inc. is pursuing the
    centralize warehousing and outsourcing operations to Global Logistics option (Option 2), it will benefit from the
    greatest amount of savings with respect to the baseline.


    1 1
    2

    Data and an accurate calculation can be found in the enclosed excel model.
    Note that shipment costs are not taken into account.

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