Scientific Glass Incorporated: Inventory Management Harvard Case Solution & Analysis

Question 1

What are the problems facing SG in 2010? What are the causes of those problems?

The key problem that is being faced by SG in 2010 is that the total inventory of the company has been increasingand this has resulted in an increase in the total cost of inventory such as the holding costs of inventory. The excess inventory has been costing the overage and underage costs and SG company has exceeded its target debt to equity ratio that is currently at 40%. The newly hired inventory-planning manager has been tasked to developa new strategy to control the inventory of the company and reduce the inventory holding costs.

There are a number of factors that had contributed to the increase in the average level of the inventory at Scientific Glass Incorporation. First of all, if we talk about the fill rate policy of the company then the market average is 92% fill rate while the company was maintaining a fill rate of 99%. The sales team of the company believed that it was important and critical to differentiate the company by having the highest possible service level. However, this is open to discussion and most of the times, the warehouse managers also exceeded these limits and they were keeping higher levels of inventory as a result of the high fill rate.

Secondly, the managers of the inventory management have developed a policy that the supply of the company should not exceed a period of 60 days. Most of the managers of the company have been exceeding this supply limit therefore, this could be another reason for the excess inventory. All these factors have contributed to the growth in the inventory at SG. Now the transshipment costs and the inventory levels need to be decreased in order for the SG company to become a market leader. The management has tried different approaches in the past but it has failed. Now, the warehouse management approach should also be changed and policies should be designed.

Question 2

How do SG’s problems illustrate the relationship between the number of warehouses and inventory levels? What are the costs of that inventory?

A positive relationship could be seen between the levels of the inventory and the number of the warehouses as shown by the inventory problems faced by the managers at SG. The product requirements and the current number of warehouses has been increasing along with the level of the inventory inSG warehouses. The company can concentrate on the larger customers of the company by placing more products and increasing the number of the warehouses that are operated by the company.

If any of the products of the company was not available at any warehouse, then customers of SG have to wait for 3 weeks and the extra cost that has been identified by the sales team for this delay is around 10% of the gross profit of that product. Moreover, as the inventory levels of the company had increased as a result to meet the demand, the company had added new warehouses to increase the customer service levels...........

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