Scientific Glass Exec Summary Sample

Scientific Glass, Inc.: Inventory Inventory Management Executive Summary Scientific Glass (SG) provides specialized glassware f or a variety of organizations such as pharmaceutical pharmaceutical companies, hospitals, research labs, quality-control quality-control sites and testing facilities. As of  January 2010, there was a substantial increase in their inventory balances which tied up the capital necessary for further investment needed for expansion. The debt-to-capital ratio surpassed the target of 40% preventing the company to use their capital in other areas. In addition, the shipping costs were rising, competitive pressures were accelerating, and certain markets in North America and Europe were becoming saturated which underscored the necessity for capital investment for expanding market opportunities in Latin America America and Asia. Moreover, expanding warehousing network increased the inventory levels along with costs, documentation complexities and errors. The company hired a new Manager of Inventory Planning, Ava Beane, to come up with an effective plan to manage SGs inventory without requiring a large capital investment. investment. In order to finance operations in year 2010, SG requires an external funding of $53.8 million (Exhibit 1). These expenses would further limit the company to use their existing capital in other areas such as research and development and expanding to international markets. To improve customer service levels, SG had increased the target customer fill rate to 99% and added six more leased warehouses to meet the demand more accurately. This led to an increase in the inventory levels as some warehouse managers kept extra inventory in order to meet the company target fill rate. To address the inventory problems, the following alternatives are available to SG: 1) Centralized warehousing in Waltham: This would allow SG to pool its inventory in order to meet demand. However, the customer response times would increase. 2) Decentralized warehousing: In addition to the main warehouse at Waltham, there would be another warehouse 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. 3) Outsource warehousing to Global Logistics (GL) which will provide a centralized warehousing in Atlanta: Goods will be transported in bulk from Waltham to Atlanta and GL would take responsibility of inventory-control and delivery to the customers. This way SG would not have to bear the warehouse rental charges and could focus on increasing sales and develop newer products to meet customer needs. Ava Beane should propose the following actions to Eric Gregory and Melissa Hayes: 1) Centralize warehousing in Waltham (option 1) to meet demand in Southeast and Northeast regions using delivery service of Winged Fleet as their rates are cheaper for these two regions (Exhibit 2). 2) Outsource warehousing to GL (option 3) to meet demand in the Central, Southwest and Northwest regions because shipping costs for those regions is cheapest with the GL rates (Exhibit 2). 3) Lower fill rates to the industry-average in order to decrease inventories. 4) Greater enforcement by managers to avoid keeping excess inventories in the warehouses. 5) Have periodic reviews of inventory and control procedures for all stocks in the warehouses.

Exhibit 1 External Funding Required in Year 2010 Expansion production and machines $ 10,000,000 Inventory for additional distributors $

1,500,000

Operating expenses $ 88,800,000 Liabilities $ 6,700,000 Total $ 107,000,000 Less current assets $ 22,200,000 Less owners equity $ 31,000,000 Total External Funding required $ 53,800,000 Exhibit 2 Shipping Comparison* Centralized warehousing in Waltham Southeast Northeast Central Southwest Northwest Winged Fleet: Waltham warehouse to customer $

27.62 $

27.62 $ 34.62 $

38.62 $

38.62

Decentralized warehousing Southeast Northeast Central Southwest Northwest Bulk transport: Waltham to Dallas warehouse - - $ 7.80 $ 7.80 $ 7.80 Winged Fleet: Dallas warehouse to customer $ 27.62 $ 27.62 $ 27.62 $ 34.62 $ 34.62 Total $ 27.62 $ 27.62 $ 35.42 $ 42.42 $ 42.42 Centralized warehousing in Atlanta with GL Southeast Northeast Central Southwest Northwest Bulk transport: Waltham to Atlanta - - $ 7.80 $ GL: Atlanta to customer - - $ 22.25 $ 24.48 $ Total

$ 30.05 $

32.28 $

7.80 $ 25.59 33.39

*Based on average customer shipment weight of 19.5 lbs

7.80

Scientific Glass; Inventory Management

Scientific Glass, Inc; I nventory Management Company Background Scientific Glass established in 1992. It manufactures specialized glassware for laboratory usage and research facilities. Especially, middle size target is very high competition, which focusing on providing durable product, innovative design, and superior customer service. This forces the company focus on niche market by using information system to enable specific market focus in order to serve target better than competitors. In this industry continues growth over the past decade, which ranged from 3% to 5%. For  Scientific Glass focused of its sales effort in North America for 70% of total sales. Moreover, after SG developed relationship with distributor in Germany in 2002, it makes SG has 20% of  total sales come from Europe. Another 10% is come from Asia market, which has distributor  in Singapore server that market. The main customers of this industry, like the other providers, SG selling its products to many organizations such as; 1) Pharmaceutical companies 2) Biotechnology firms 3) Hospitals 4) Academic and government research labs 5) Environmental testing facilities 6) Industrial research and development facilities 7) Quality control sites The price range of its product is from less than $3 to more than $200, with the average range is falling in $4 to $20. SG has more than 3,000 different standardized products. Also, company offers custom glassblowing services to customer who required specialized solution for its products. High Inventory Problem Due to increasing in customer service level, SG planned to add regional warehouses in many parts US. SG has the main and the largest one in Waltham, MA, which is next to

manufacturing plant. SG also has another warehouse that located outside of Phoenix,  Arizona. However, at the end of 2008, SG bought other six warehouses. This means SG has the total 8 warehouses to serve customers. (Annual rental and operation costs for North  American warehouses were 15% of the cost of the warehoused inventory.) 1) Waltham, Massachusetts. (Main and the largest) 2) Phoenix, Arizona 3) Toronto, ON, Canada 4) Seattle, WA 5) Denver, CO 6) Dallas, TX 7) Atlanta, GA 8) Chicago, IL However, in 2006, before 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 effi ciency of its capacity.   Another problem of warehouse management is company expected to reach high level of  customer service to 99%, so that warehouse managers keep order inventory ahead (before it reach threshold of inventory level to order new one) to assure that they will meet the customer service target level at 99%. This situation causes high inventory levels than required, and also high inventory turnover. Moreover, salespeople were allow having its products up to $10,000 worth from warehouse and kept them in trunk stock in their homes and cars in order to deliver this inventory on short notice to any customer who was within driving distance. This amount could leads to high finished goods in warehouse and in-transit as shown in exhibit 6. It could lead to missing products in inventory, and lost. MIS in Action 1) Reducing high inventory level Since SG decided to expand the warehouse at Waltham, MA, and bought other 6 warehouse to support its growth in the later time. It¶s made the main and the largest warehouse does not work at the full efficiency. I would like proposed to reduce the number of regional

warehouses down to 2 main warehouses in order to reduce the cost of rental and operating warehouses, reduce inventory turnover, and easier to control demand between East and West. Warehouse at Arizona will become a second distribution point in West side and Waltham will be the main one in East side. Centralization warehouses separately in East and West are in order to pool demanding in each inventory and serve customer with high service level in each sides. Each warehouse placed orders from manufacturing facility once per  week, and it takes five business days to arrived and stocked in destination warehouse. The shipping to other warehouse uses third-party bulk shipper at $0.40 per pound. And the delivery to customers, SG uses ground delivery service called Winged Fleet. In table 1 showing the cost analysis in several shipping process. The lowest cost is come from decentralization, but it will affect the rental and operating warehouses cost, which is about 15% of the cost of the warehoused inventory. The 2 centralizations would be the better and the best option to maintain high service level with the lowest cost. Data warehouses normally uses for collect current data and historical data of potential interest to decision makers throughout the company. It is effective for management reporting and analysis, which this information provides users with information about the data available in the warehouse. Thus, to meet all demand in each area, we can use data mining to find the pattern and relationships in customer behavior. Identification the profitable customers in different areas would be efficiency way to make assumptions about future conditions to predict probability a customer will respond to an offer or purchase a specific product. As shown in figure 2 show sales of major product categories in 2009, it is simple forecasting the demand in 2010 that containers (bottles and flasks) would be the main portion of sales so that SG has to prepare the inventories in order to meet the demand in next year. Moreover, the trunk stock problem that came from salespeople keeping its stock amount up to $10,000 can be solved by reduce and limit the amount of inventories that they can held. I believe that to keep some amount of products with salespeople is necessary in order to keep up the urgent demand, recover missing order, and for sample products to customers. However, company needs to track all inventories where are they going into the system to prevent missed order and goods. | Winged Fleet | Winged Fleet | Global Logistics | | 2 Centralization | Centralization | Decentralization | Centralization with GL | Southeast | 23.368 | 23.368 | 20.288 | 20.61 | Northeast | 16.368 | 16.368 | 16.368 | 18.91 | Midwest | 23.368 | 23.368 | 20.288 | 26.17 | Southwest | 16.368 | 27.368 | 20.288 | 28.4 |

Northwest | 23.368 | 27.368 | 20.288 | 29.51 |  Average | 20.568 | 23.568 | 19.504 | 24.72 | Forecast shipment cost in 2010 | 28,893,679.58 | 33,108,043.58 | 27,398,985.15 | 34,726,359.36 | Main Warehouse at Waltham, Massachusetts Main Warehouse at Waltham, Massachusetts Table 1 Figure 1 Figure 1 Second Warehouse at Phoenix, Arizona Second Warehouse at Phoenix, Arizona Figure 2 2) Single inventory system For inventory control system, it should provide a single system, which it¶s easier to collect, synchronize, and access all data with one single database. However, we have to limit the accessible data of each level of employees for security and work effectiveness. Furthermore, the main warehouse is Waltham, Massachusetts will be the center of database to record and collect all information. Anything comes and goes have to be record in this database, and using warehouse at Arizona, as another branch to link information and get inventories from the main one. It would one important factor to help company reduce number of inaccurate record, such as human errors, inaccurate return processing, and improperly tracking of  warehouse transfers.   Another improvement inventory system is that SG needs to implement RFID technology. From the article, SG still needs to use manually check the stock in warehouse to recheck and confirm that products are available before customers placed a large order. This would cause many time consuming and cost that company might lose. Also, SG plans to meet the high customers service level at 99%. The manager of inventory planning positions, it would create a great enforcement to maintain only sufficient inventories in their warehouses to meet that target. RFID will provide effective system that every movement of all inventories will be recorded to database in real time system. Thus, the inventories recorded can have

data that up to date and accuracy. With RFID technology, single high efficiency database, and well management, it would not occur backorder products. 3) Be ready for growth In North American and European market are relative saturation, but Asia Pacific and Latin  American markets are has relative growing in every year. However, Europe and Asia Pacific region do not have its salespeople. Company hired sales representative of distributors partnership to promote its products alongside products from other firms due to the difficulty associated with managing an overseas sales and distribution function. I believe that growth in Latin America, Europe and Asia Pacific would be great potential for  company to stepping forward. Investment in Asia and Latin America by adding another  distributors and hiring sales representation of its own, not from distributor partner, would create significant benefits to the company to expand the market and sales the product more efficiency. For Europe, I think it would be not necessary now to invest in second distributor, but it would be better off to hiring sales representation that directly report to the company, which do not work for distributor partner. With this changing, it would increase demand, broaden target area, and sales its product more efficiency.