Scientific Glass Sg Provides Specialized Glassware Finance Essay

Scientific Glass Sg Provides Specialized Glasswargon pay EssayScientific Glass provides specialized glasswargon for a word form of organizations such as pharmaceutical companies, hospitals, research labs, quality-control sites and testing facilities. As ofJanuary 2010, at that place was a substantial subjoin in their scrutinise balances which tied up the capital of the United States necessary for bring forward investiture needed for expanding upon. The debt-to-capital ratio surpassed the patsy of 40% preventing the participation to use their capital in sepa swan atomic number 18as. In addition, the shipping woo were rising, competitive pressures were accelerating, and certain foodstuffs in North the States and Europe were becoming satu respectd which underscored the necessity for capital investment for runing market opportwholeies in Latin America and Asia. Moreover, expanding memory ne twork increased the size up take aims along with be, documentation complexities and errors.The go with hired a new theatre director of breed Planning, Ava Beane, to come up with an utile plan to manage SGs scrutinize without requiring a large capital investment. In order to finance achievements in year 2010, SG requires an external funding of $53.8 million (Exhibit1). These expenses would further limit the lodge to use their existing capital in other aras such as research and development and expanding to world(prenominal) markets. To improve node service levels, SG had increased the target node have rate to 99% and added sextette more(prenominal)(prenominal) leased ware houses to go the demand more accurately. This led to an increase in the size up levels as some store managers unploughed extra store in order to play the company target get rate.Good practicesMaintained continued sales produce and full(prenominal)er customer satisfactionProduced creative products with lower life cycle beFocused on durable products, innovative design s and superior customer servicesReduced time between ordering and delivering the products to the customersBad practices set catalogue management as an aft(prenominal)(prenominal)thought, due to which inventory imbalances were increasingThe company exceeded its target debt to capital ratio of 40%Incurred both minor and outdated costsHigh Inventory ProblemDue to increasing in customer service level, SG planned to add constituental stores in numerous parts US. SG has the main and the largest one in Waltham, MA, which is next to manufacturing plant. SG also has a nonher(prenominal)(prenominal) warehouse that located outside of phoenix,Arizona. However, at the end of 2008, SG bought other six warehouses. This means SG has the count 8 warehouses to serve customers. Annual rental and operation costs for NorthAmeri sewer warehouses were 15% of the cost of the warehoused inventory. However, in 2006, onwards add more 6 warehouses, SG already made investment to expand the warehouse at Waltham in anticipation of continued growth, but after these 6 warehouses had been bought, this warehouse does not work full efficiency of its capacity. some other problem of warehouse management is company expected to reach spirited level ofcustomer service to 99%, so that warehouse managers detect order inventory ahead before it reach threshold of inventory level to order new one to assure that they provide collaborate the customer service target level at 99%. This office causes high inventory levels than required and also high inventory turnover. Moreover, salespeople were brook having its products up to $10,000 worth from ware house and kept them in frame stock in their homes and cars in order to deliver this inventory on short notice to any customer who was within driving distance. This list could lead to high finished goods in warehouse and in-transit as shown in exhibit 6. It could lead to missing products in inventory, and lost.Proposed solutions to inventory prob lemIn order to solve the inventory issues, on that point are actu on the whole(prenominal)y two main aspects to considerNumber of warehouses and their structure base be castrated relate policies deal be changed and of course appropriate ones can be through with(p) simultaneously.For changing the number of warehouses, in other words, primalizing or decentralizing wareho using functions, procurable options are considered asCentralized store in WalthamIn this option, one central warehouse near to manufacturing facility at Waltham pass on send all(a) customer orders from one location. Centralize storehouse in Waltham to chance demand in Southeast and Northeast regions using delivery service of travel Fleet as their evaluate are cheaper for these two regions. This would allow SG to pool its inventory in order to meet demand. However, the customer response propagation would increaseDe modify warehousingIn addition to the main warehouse at Waltham, there would be another w arehouse at Dallas which would be supplied from Waltham. This would allow demand to be met for all the regions and prevent any stock-outs in a single warehouse.Continuing with 8 warehousesThis option unclutters no change on the network of the warehouses and all regions allow be supplied its warehouse if there is no stock-out occurs.Two centralized warehousesIn this option, addition to the main warehouse at Waltham, there result be an redundant warehouse at the west, at Phoenix, and it forget be supplied from Waltham. imply of east region lead 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 equal shares on the central region.Outsourcing the warehousing functionsIn this option, all warehousing actions will be outsourced to world-wide Logistics (GL) and distribution will start from main warehouse at Waltham and thus GL will be responsible from rest of the operations. outsource w arehousing 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 Global Logistics (GL) which will provide a centralized warehousing in Atlanta. Goods will be transported in the great unwashed from Waltham to Atlanta and GL would give birth responsibility of inventory-control and delivery to the customers. This way SG would not have to bear the warehouse rental charges and could revolve around on increasing sales and develop newer products to meet customer needs.Changes in inventory policyIn addition to these options, Beane should externalise the following actions to Eric Gregory and Melissa HayesLower fill rates to the industry- fair(a) in order to decrease inventories.Greater enforcement by managers to avoid hold ining surplus inventories in the warehouses.Have periodic reviews of inventory and control procedures for all stocks in the warehouses.Evaluations of the p roposed solutionsEvaluation of mentioned resources will be conducted from mainly five aspects point costs, amount inventory levels,Time responsiveness,Fill rates andAdditional costs and benefitsTransportation CostsTransportation costs for alternatives are metric for the two products, viz. Griffin and Erlenmeyer, since they are mentioned as the dress hat representative for a extreme of nearly 3000 products of Scientific Glass. In addition, for each option, demand for the next year deliberate considering the 20% increase in sales. When warehouse to customer loadings are considered average shipment weight of 19,5 pound is used and to have an average menu cost value, these two products costs are averaged according to their congeneric proportion in sales . It also be mentioned that, inter-warehouse transshipments occur solitary(prenominal) when stock-out occurs and as the number of warehouses are diminish, effect of this costs will be diminished thence, it is still considere d in the option where there are 8 warehouses.For the 1st option, 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 bulkshipment rates and they are considered only when when a stock-out occurs, therefore fill rate is included in these calculations and average total cost found as $2701, 41For the 2nd option, when there is only one warehouse, all customer shipments are calculated for rates of winged Fleet. In this option, average total cost is calculated as $12210, 16.For the third option, when two centralized warehouses considered, it is assumed that Waltham will supply east region, Phoenix will supply will west region and they will every bit supply the central region. Average total cost is found as $2332.07.For the last option, when warehousing functions are outsourced, assuming the 5 regions ofGlobal Logistics (GL) will have equal amount of demand. Total average cos t is calculated as $2276, 83.To conclude, 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 LevelsFirst of all, it must be decided which inventory policy that the company should apply.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 concluded that company uses periodic inventory review policy.Secondly, company did not mention any due date, therefore the inventory plans should consider numberless time horizon. And lastly, though there exists a fixed cost for shipments from warehouses to customers there is no other fixed cost relate to 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 critical ratios and the related fill rate values, which is the only option that is left and also it is considered as the well-nigh applicable to the state of affairs. 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 must 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 identical 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 ofcollaboration, the lower the uncertainty (standard aberrancy of the error or coeff icient of variation) ofthe demand modelThis implies that the money tied up in the inventory decrease sand this extra capital can be used in other areas, like expansion plans to international marketsTime ResponsivenessDelivery system of the company compensates 2 weeks of shipment cycles including the stock-out situations. In order to be a market leader, distinguishableiation on this subject is also needed and unfortunately since this is not an exact numeric 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 aggregated demands.On the other hand, GL has 1-day premium shipment in addition to 3-day regular shipments. Considering the highly growing market situation and varied 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 on the job(p) 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 compared to other options. And all of these aspects will increase the time responsiveness of the company.Additional Costs and BenefitsQuantitative issues to related to options of inventory managementIn order to continue with the current warehouses total of $10M investment is necessary, it is assumed that all of this amount will be equally divided up among all warehouses.Since warehouse operating costs will be the %15 of the total warehoused inventory, these costs could be directly compared with the annual average inventory levels that are kept in each optionThe amount pay to sales forces will not change when the company has 1, 2 or 8 warehouses bec ause it is assumed that as the number of warehouses decreased, number of salesperson per warehouse will increase and total of 32 will not change. On the other hand, when warehousing is outsourced this amount will not be paidQualitative issues to related to options of inventory managementWhen GL is used for warehousing, SGs senior managers will be able to focus on increasing sales, marketing issues and exploitation next generation of products.There are some issues that must be mentioned from the proposed policy changes. Stopping the practice of trunk stock could conclude with a decrease in the time responsiveness and therefore it should not be stopped.Also as mentioned in the same proposed policy changes, improving thec ontrolling 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 than99% 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 gradeCompanys fill rate policy should also be calculated for the different alternatives.The company replaced the earlier fill rate policy of 93%, which is only marginally better that the industry 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 than optimal 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 four alternatives we should consider cost items which are added to underage and overage c osts. However, the sales leadership noted that 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 three alternatives 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 date underage costs are increased. Resulting optimal fill rates are as follows1, 2, or 8 warehouses Outsourcing annexe product 1 95.4% 96.5%Reference product 2 94.9% 96.1%These numbers can be interpreted in two different waysIf company is flexible about the termination 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 highe r levels which results in larger inventories and more money to tie up.If the company still insists on keeping fill rate at 99%, the additional costs that must be paid to maintain 99% fill-rate level is get down in the outsourcing alternative.Consequently, the better policy related to fill rates calculate 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 strike 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 transportation 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 our previous investigations yield that the outsourcing the warehousing function to Global Logistics is the best alternative among all. All of investigations and cost studies conducted in this case study are to find the most cost effective option in order to getting closer 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 hig h customer satisfaction level