Analysis Of Scientific Glass Inventory Management Finance Essay

The products of Scientific meth include customized and specialized methamphetaminew atomic chassis 18 for a variety of organizations such as pharmaceutical companies, hospitals, research labs, quality-control sites and testing facilities. By January 2010, a substantial growth in their account balances tied up the cap needed for investment for expansion. The debt-to- bully ratio exceeded the 40% target pr fifty-fiftyting the society to use their dandy in opposite atomic form 18as. besides the merchant marine salutes were rising, competitive pressures were speeding up, and genuine markets in North America and Europe were becoming satu ordinated which underscored the destiny for capital investment for expanding market opportunities in Latin America and Asia. Moreover, expanding memory board meshing increased the register levels along with be, documentation complexities and breaks.The gild chartered a new Manager of Inventory Planning, Ava Beane, to come up with an in force(p) plan to manage SG s line without requiring a large capital investment. In roll to finance operations in year 2010, SG requires an out-of-door funding of $53.8 million. These expenses would further limit the company to use their existing capital in early(a) beas such as research and development and expanding to planetary markets. To improve guest service levels, SG had increased the target customer take send to 99% and added six more(prenominal) leased w be houses to sports comelying the learn more accurately. This led to an increase in the stock certificate levels as some storage wargonhouse managers kept extra inventory in guild to meet the company target take up rate.Good practicesMaintained move gross revenue growth and uplifteder customer satisfactionProduced creative products with lower life cycle beFocused on durable products, advanced designs and superior customer servicesReduced quantify between parliamentary procedure and spareing the pr oducts to the customersBad practicesTreated inventory management as an afterthought, due to which inventory imbalances were increasingThe company exceeded its target debt to capital ratio of 40% Incurred both underage and out-of-date costHigh Inventory Problem delinquent to increasing in customer service level, SG planned to add regionalwarehouses in many parts US. SG has the main and the largest one in Waltham, MA, which is coterminous to manufacturing plant. SG also has an new(prenominal) warehouse that located outside of Phoenix, Arizona. However, at the give the sack of 2008, SG bought former(a) six warehouses. This means SG has the total 8 warehouses to serve customers. one-year term of a contract and operation costs for North American warehouses were 15% of the cost of the warehoused inventory. However, in 2006, before add more 6 warehouses, SG already compel investment to expand the warehouse at Waltham in anticipation of defend growth, but after these 6 warehouses had been bought, this warehouse does not work skillful efficiency of its capacity.Another problem of warehouse management is company judge to collect pass high level of customer service to 99%, so that warehouse managers keep order inventory ahead before it r sever every(prenominal)y threshold of inventory level to order new one to fix that they exit for meet the customer service target level at 99%. This military post causes high inventory levels than required and also high inventory turnover. Moreover, salespeople were tot bothyowed to defecate its products up to $10,000 worth from ware house and keep them in trunk stock in their homes and cars in order to deliver this inventory on short notice to any customer who was at bottom driving distance. This measuring rod could lead to high finished goods in warehouse and in-transit. It could lead to missing products in inventory, and lost.Proposed solutions to inventory problemIn order to solve the inventory issues, devil main manifestations need to be considered bend of warehouses and their structure can be shiftdRelated policies can be changed and more appropriate policies need to be implemented.For changing the number of warehouses, in other words, underlyingizing or decentralizing reposition functions, the distinct elections considered are as followsCentralized storehouse in WalthamThis cream uses a single central warehouse near to manufacturing facility at Waltham and go away send whole customer orders from this one location. Centralized warehousing in Waltham to meet demand in South eastern about and Northeast regions used the delivery service of travel Fleet as their judge are cheaper for these 2 regions. This would allow SG to pot its inventory in one place in order to meet demand. But the customer repartee times wouldincreaseDe alter warehousingThis option considers more number of warehouses rather than having a single centralize warehouse to meet the demand better and reduce cus tomer response time.Continuing with 8 warehousesThis option makes no change on the ne twork of the warehouses and all regions allow for be supplied its warehouse if at that place is no stock-out transcends. twain centralized warehousesIn this option, the do-gooderal warehouse impart be at the west at Phoenix and it result be supplied from Waltham. Demand of east region will be met from Waltham, demand of west region will be met from Phoenix and demand of central region will be met from both warehouses, assuming to have lucifer shares on the central region. This option may also consider including the warehouse at Dallas In addition to the main warehouse at Waltham. This additional warehouse would be supplied from Waltham. This would allow demand to be met for all other regions and prevent any stock-outs in a single warehouse.Outsourcing the warehousing functionsIn this option, all warehousing actions will be outsourced to globose Logistics (GL) and distribution will start fro m main warehouse at Waltham and then GL will be responsible from rest of the operations. outsource warehousing to GL to meet demand in the Central, Southwest and Northwest regions because shipping costs for those regions is cheapest with the GL rates. Outsource warehousing to globose Logistics (GL) which will provide a centralized warehousing in Atlanta. Goods will be transported in pop from Waltham to Atlanta and GL would take responsibility of inventory-control and delivery to the customers. This way SG would not have to bear the warehouse rental charges and could pore on increasing sales and develop newer products to meet customer involve.Evaluation of the proposed solutionsHaving proposed certain options for inventory management, the rating of the various options needs to be evaluated using certain parameters to perplex at a conclusion on which would be comparatively the better option to be followed for scientific glass. Evaluation of different options will be conducted ground on the following five parametersTransportation costs,Average inventory levels, cartridge holder responsiveness,Fill rates andAdditional costs and benefitsSince all the products of scientific glass can be arrived out based on the analysis of its 2 products namely Griffin and Erlenmeyer, since they are lifted as the best representative for a total of nearly 3000 products of Scientific Glass, all the parameters are analyzed for these products to arrive at a conclusion.Transportation CostsTransportation costs for different options would be placed for the two products, namely Griffin and Erlenmeyer. In addition, for to each one option, demand for the next year calculated considering the 20% increase in sales. When warehouse to customer lodes are considered reasonable payload weight of 19, 5 pound is used and to have an average transportation cost value, these two products costs are averaged according to their relative proportion in sales. Inter-warehouse transshipments occur barely when stock-out occurs and as the numbers of warehouses are decreasing, effect of these costs will be diminished indeed, it is only considered in the option where there are 8 warehouses.OptionTransportation cost($)Centralized warehouse all customer shipments are calculated for rates of move Fleet 12210, 168 warehouses- having 8 warehouses and making no change, from Waltham to all other 7 warehouses all items are sent by bulk shipment. Inter-warehouse transshipments are calculated by bulk shipment rates and they are considered only when a stock-out occurs, therefore adjoin rate is included in these calculations 2701, 412 warehouses , when two centralized warehouses considered, it is assumed that Waltham will fork out east region, Phoenix will supply will west region and they will equally supply the central region 2332, 07Outsourcing when warehousing functions are outsourced, assuming the 5 regions of Global Logistics (GL) will have equal amount of demand 2276, 83To con clude, as it is expected, when numbers of warehouses are decreased transportation costs are increased. From the aspect of transportation costs, GL option has the smallest cost amount.Average Inventory LevelsThe inventory indemnity to be used by the company needs to be decided. begin with the review type although firm monitors the entire inventory transfers from Waltham warehouse to other warehouses they think taking physical counts of inventory at all warehouses. Therefore, it is conclude that company uses periodic inventory review polity. Company did not mention any due date, therefore the inventory plans should consider infinite time horizon. Though there exists a quick-frozen cost for shipments from warehouses to customers there is no other fixed cost related to transportation to the warehouses, i.e. no fixed ordering cost. The only order cost is $0.40 per pound bulk shipment cost which is a variable cost with weight. As a result, all analysis can be conducted considering cr itical ratios and the related fill rate values, which is the only option that is left and also it is considered as the most applicable to the situation. Since some of the simultaneous changes can be done, considering ceteris paribus principle and when fill rate is maintained exactly as 99% for all warehouses, we can calculate the average inventory level that essential be kept at warehouses. Weighted-average biweekly inventory levels are found as8 warehouses 988532 warehouses 680341 warehouse 59703Outsourcing 59703When outsourcing option is used, it will be the same for the company in the sense of kept inventory levels for the one-centralized-warehouse option therefore they are assumed to be equal. As 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 (standarddeviation of the error or coefficient of variation) of the demand modelThis implies that the currency tied up in the inventory decreases and this extra capital can be used in other areas, like expansion plans to international markets Based on average inventory levels, either single centralized warehouse or outsourcing gives equal results. sentence ResponsivenessDelivery system of the company compensates 2 weeks of shipment cycles including the stock-out situations. In order to be a market leader, differentiation on this subject is also needed and unfortunately since this is not an exact denary scale, only possible situations could be mentioned. For having one centralized, or two centralized or 8 decentralized warehouse options, they all include at most 3 days ready to shipment duration and Winged Fleets delivery time of at most 3 days if there is no stock-out situation and the stock-out probabilities are diminishing with the add up demands. On the other hand, GL has 1-day premium shipment in addition to 3-day continuous shipments. Considering the highly growing market situation and diff erent segment of products, having different delivery times to different products and also to different customers will make this company focus on the most yielding areas. Therefore, it can be said that working with GL has the advantage of differentiating customers/orders and, since there will be 2 warehouses, stock-out probability and related durations will be less equald to other options. And all of these aspects will increase the time responsiveness of the company.Additional Costs and Benefits duodecimal issues to related to options of inventory management In order to continue with the current 8 warehouses total of $10M investment is necessary, it is assumed that all of this amount will be equally shared among all warehouses. Since warehouse operating costs will be the 15% of the total warehoused inventory, these costs could be straightaway compared with the annual average inventory levels that are kept in each option The amount paid to sales forces will not change when the compa ny has 1, 2 or 8 warehouses because it is assumed that as the number of warehouses decreased, number of salesperson per warehouse will increase and total number of sales persons will not change. On the other hand, when warehousing is outsourced thisamount will not be paid Qualitative issues to related to options of inventory management.When GL is used for warehousing, SGs senior managers will be able to focus on increasing sales, marketing issues and developing next generation of products. stopping the practice of trunk stock could lead to a decrease in the time responsiveness and therefore it should not be stopped. Improving the supreme systems will create a better understanding of the current situation after the warehousing functions changed. Finally, when GL is used, the approach of warehouse managers to keep more than 99% fill rate and 60-day-supply will not be a problem, because all of these operating issues will be responsibility of GL. This will help to company not to keep excessive amount of inventory and less tied-up money in the inventory which can be used in other areas.Fill RateCompanys fill rate policy should also be calculated for the different options. The company replaced the earlier fill rate policy of 93%, which is only borderally better that the persistence average fill rate of 92%, with 99%. However, there is no sign that the company is implementing this policy because it is the best approach that must be taken for the company objectives. Moreover, using a fill rate higher(prenominal) than best level leads to higher inventories and more money tied up in the inventory. Therefore, company should lower the rates down to optimal levels, if there is no other concern related to market leadership or customer satisfaction.To calculate the optimal levels of fill rates for all tetrad options the cost items which are added to underage and overage costs also needs to be considered. The underage costs are 10% of the gross margin and overage costs are 0.6% of the unit cost of any product. Also it is assumed that unit costs covers all the costs such as warehouse rental and operation costs, cost of capital and inventory write-offs. For the ternary options other than outsourcing, there is no change in cost items, only the multiplied quantities are changed but the outsourcing alternative eliminates the 15% warehouse rental and operating costs and 1% inventory write-offs. As a result, overage costs are decreased while underage costs are increased.Resulting optimal fill rates are as follows 1, 2, or 8 warehouses OutsourcingGriffin 95.4% 96.5%Erlenmeyer 94.9% 96.1%These numbers can be interpreted in two different waysIf company is flexible about the determination of fill rate, in other words if it can lower the fill-rates from 99% to optimal levels, outsourcing option pushes the optimal fill rates to higher levels which results in large inventories and more money to tie up. If the company still insists on safekeeping fill rate at 99%, the additional costs that must be paid to maintain 99% fill-rate level is lowered in the outsourcing alternative. Consequently, the better policy related to fill rates depend on the attitude of the company.Finally, another policy change about fill-rates can be considered. 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.ConclusionTo conclude, since available options are studied from different aspects, it must be mentioned that the company should choose the alternatives and compare the results of evaluations according to their priorities. For instance, evaluation criteria like inventory levels and transportation costs are conflicting on interests. Company can see their situation and make decisions according to priorities.While assessing the weights for factors, it is considered that average inventory level and the transport ation costs are the most important costs for the company. Then, the fill rate follows them. Time responsiveness is the next important factor which is followed by additional costs and benefits with equal weights for each. Changes in warehouse management are considered as options other than outsourcing do not provide radical policy changes which could make warehousing management better. These weights and the scores related to the investigations yield that the outsourcing the warehousingfunction to Global Logistics is the best alternative among all. All of investigations and cost studies conducted are to find the most cost effective option in order to getting impending to the target debt to capital ratio of the company and provide more capital to fund expansion into new international markets while maintaining or even improving the high customer satisfaction level