Scientific Glass Case Study
Unformatted text preview: 2 Scientific Glass, Inc. Case Analysis Case Introduction Established in 1992, Scientific Glass, Inc. (SG) is a privately held glassware company specializing in glassware specifically tailored to suit the needs of laboratories and research facilities. SGs market, to this point, has primarily been constrained to North America with its minimal international exposure limited to parts of Europe and the Pacific region of Asia. By focusing efforts on providing durable products, innovative product design, and exemplary customer service, SG has created competitive advantages that have established it as a formidable midsize competitor within the industry. These distinct advantages have facilitated growth culminating in annual sales of $86 million. Revenues of this magnitude, however, have magnified some supply chain inefficiencies that SG is now compelled to address. This particular scenario is concentrated predominately on inventory management inefficiencies, possible methods for mitigating them, and their impact on profits. SG is a growing company that has managed to compete in a highly competitive market. Although the company is growing at a promising rate, SG still faces many issues relative to inventory management. Attempting to improve on its already exceptional level of customer service, SG opted to add additional regional warehouses to its existing distribution framework. This framework, until 2008, consisted of a large warehouse in close proximity to the manufacturing plant in Waltham, Massachusetts and a smaller facility located in Phoenix, Arizona. As the company grew, SG added six warehouses 3 across North America to improve customer response time and, consequently, customer service levels. Although response times have shown improvement, associated increases in inventory have resulted in significantly elevated holding costs that reduce available capital. Not surprisingly, SGs total debt to capital ratio rose above the companys target of forty percent, further limiting its ability to fund a previously planned expansion into international markets. Although SG has incurred significant increases in shipping and holding costs, the newly adopted policies concerning stocking and customer service levels are expected to result in attaining a customer service level of 99%. Significantly higher than the industry average of 92%, this nearly perfect customer service level coupled with a customer service reward program for sales managers gives SG an invaluable competitive advantage. However, an unforeseen cost of implementing the reward program has advantage....
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(Page 5, para. 6). Considering all these aspects, it is found that inventory levels and transshipment costsshould be decreased and at the same time responsiveness to customer should be increased in order to bea market leader. By doing these, simultaneously, approach of the warehouse management could bechanged to a better position by changing policies related to them as it is tried in the past with differentways and failed (Page 6, para. 6). In addition, when this inventory level kept under control, debt tocapital ratio will be saddled since extra capital tied up in the inventory will be available to be used.
ALTERNATIVE OPTIONS FOR PROBLEMS
In order to solve the analyzed problems in the previous part, there are actually two main aspectsto consider: firstly, number of warehouses and their structure can be changed; secondly, related policiescan be changed and of course appropriate ones can be done simultaneously.For changing the number of warehouses, in other words, centralizing or decentralizing warehousingfunctions, available options are considered as:
Continuing with 8 warehouses:
This option makes no change on the network of thewarehouses and all regions will be supplied its warehouse if there is no stock-out occurs.
One central warehouse:
In this option, one central warehouse near to manufacturing facility atWaltham will send all customer orders from one location.
Two centralized warehouses:
In this option, addition to the main warehouse at Waltham, therewill be an additional warehouse at the west, at Phoenix, and it will be supplied from Waltham.Demand of east region will be met from Waltham, demand of west region will be met fromPhoenix and demand of central region will be met from both warehouses, assuming to haveequal shares on the central region.
Outsourcing the warehousing functions:
In this option, all warehousing actions will beoutsourced to Global Logistics (GL) and distribution will start from main warehouse atWaltham and then GL will be responsible from rest of the operations.
In addition to these options, there are some policy change proposals which try to make POMapproach better, like periodic audits and increasing reporting activity levels, stopping trunk stock activities etc. Since these policy changes can be applied at different warehousing functions theseproposals will be analyzed one by one and their possible effects will be considered.