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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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