LAHORE SCHOOL OF ECONOMICS

WAC NO: 3

MBA 2

SECTION: B-II

GROUP 1 :ALI HAIDERAMNA FAYYAZHOORIA ADNANNEHA JAVEDSARA KHANHASSAN WAQAS KHAN SIAL

DATE: March 16, 2015

SCIENTIFIC GLASS

Q1) What are the problems facing Scientific Glass in January 2010? SG treated inventory management largely as an afterthought. Inventory balances were increasing significantly as exhibit 1 shows that inventory almost doubled from 4.9 to 8.7 with an increase of 77.5% This tied up the extra capital that the company required to fund its growing operations. The company had crossed its target debt to total capital ratio of 40%. 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. Company policies regarding target inventory levels at the warehouses were regularly violated. Shipping and inventory holding costs were steadily rising at the company. There was a mismatch between computer records and actual inventory due to human error such as incorrect processing of returns, improper tracking of warehouse, inaccurate order fulfillment etc. The time required to track down the products and the time and cost of the inter-warehouse transfer absorbed much of the profit from the sale. SGs operations were under a heavy strain from the past two years, trying to keep up with SGs sales growth and producing adequate inventory to stock warehouses. In addition, competitive pressures were accelerating and some markets in Europe and North America were becoming saturated.Q2) How much funding has to be raised in 2010 to finance operations? (53.8 million written in a case solution)

Q3. Illustrate the relationship between number of warehouses and inventory levels via SG's problems.Problems at Scientific glass capture the relationship between warehouses and inventory levels in way that high the inventory levels higher would be the cost associated for e.g. managers at Scientific glass kept higher levels of inventory due to the company's program of compensation to achieve 99% fill rate. Whereas the industry standard was 92%. As a result of which inventory holding /carrying costs, shipping costs and transit costs all were high. This also reflects in the problem that the company's debt to total capital ratio has significantly increased to 40% and their inventory control policies. SG operated a two week order cycle and incase a product was not available at the warehouse the customer had to wait for as long as three weeks for the arrival of the shipment. This also took a toll on its profits. 10% of the gross margin was lost in case a product wasn't available at the warehouse. This shows the relationship between the number of warehouses and inventory levels. That lower the warehouses high the risk of stock outs. Also the risk of bad service levels goes up. High inventory levels and centralized monitoring process from the Waltham warehouse also increased the possibilities of human error, back orders & return processing , faulty order processing , obsolence and shrinkage cost. In SG's case in addition to the 1% shrinkage cost the actual and the computerized inventory did not match as a result of which physical tallying of the goods had to be done which further took a toll on the company's profits and overall operations efficiency

Q4) What alternatives are available for dealing with inventory problems? What actions should Beane propose?1. Centralized warehousing in WalthamIt will facilitate Scientific Glass by stock pile up and cater the demand effectively but on the other hand customer response time is likely to increase as well.

2. Decentralized Warehousing There would be an additional warehouse in Dallas apart from the central warehouse. This would minimize the chances of stock outs and would help in meeting the demand for all the regions.

3. Continuing with 8 warehouseThis would allow each region to have its own warehouse and every regions demand will be dealt by its specific warehouse. However, this would increase the cost immensely.

4. Outsourcing of warehouse to Global logisticsWarehousing can be outsourced to GL, this will allow SG to transport the inventory in bulk from Waltham to Atlanta where the warehouse will be located. In this way SC would reduce its cost of Rent and would be able to save time to invest it on other operations and to look for the opportunities for introducing new products. The responsibility of transporting the inventory and to deliver it to the customers will lie on Global Logistics.

Ave Beane should propose the following actions to Eric Gregory and Melissa Hayes:1. Centralize the warehouse in Waltham so as to satisfy the regional demand of the Southeast and Northeast region with the help of utilizing Winged Fleet delivery service because of the cheaper rates that they offer. (as shown in exhibit 2)2. Outsource warehousing to GL as it provides the cheapest rates and would result in reducing the shipping cost for the regions like Southeast & Northeast.3. Inventory and control procedures must be reviewed and monitored periodically for every stock in the warehouse.4. Fill rates must be reduced to industry average so as to decrease the level of inventory.

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