Scientific Glass, Inc.: Inventory Management The Case Solution
Another benefit of using a consolidated warehouse is that it can scale up its operations. It can expand its geographic reach. It can increase its capacity and improve its efficiency. In addition, it can also improve its competitiveness. The company can expand into adjacent areas. Its inventory is 77% higher than in 2008, and the consolidated warehouse will help the organization grow more effectively.
By combining warehouses, the company can save costs. This is a major benefit for the company and its customers. In addition, it can expand into new areas. The international market has the potential to grow, and the consolidated warehouses can help it reach its goals. Its 99% customer fill rate is an industry best. There are numerous benefits of One Consolidated Warehouses for Scientific-Glass Inc..
Disadvantages of One Consolidated Warehouse
A centralized warehouse eliminates the need for costly dispatching and shipping. They can reduce their inventory levels without the need to increase the order quantities. Furthermore, a centralized warehouse keeps the inventory level at a low level, which increases the cost of acquiring goods. For one company, this strategy results in less overstocking, which can result in lower prices.
When implementing centralized warehouses, the company would need to bring a change in its inventory management policy. The policy was made stricter, making sure that the inventory levels were sufficient to satisfy the customers. In addition, the logistics would become more complicated, and it would be difficult for the company to maintain its high-quality customer service. This would require changes in the current inventory management policies.
The company will have to pay more money for the logistics of a centralized warehouse. The company must spend $10 million in order to upgrade the equipment and the inventory level. The consolidated warehouses should ensure that there is an inventory of 99% or more for each warehouse. In addition, the cost of the new consolidated warehouses will have an impact on the service level.
Alternate 2 - Outsourcing Warehouses
The senior management of Scientific Glass Incorporation is considering to outsource the warehousing function to Global Logistics because they are offering discounted rates to the company over the shipment and charge on the basis of product’s weight and distance of delivery. So after the production, products are transferred to Atlanta where Global Logistics will manage and deliver them to the customers. Appendix 3 show the significant impact of outsourcing over the transportation and warehousing cost of Scientific Glass Incorporation without affecting customer responsiveness time but still the level of inventory problem in not mitigated in this case.
Advantages of Outsourcing Warehouse
Outsourcing warehouses to a third party can have many advantages for a manufacturing company. Unlike traditional warehouses, which require a high degree of infrastructure, SG’s facilities are located close to their customers. The SG Waltham warehouse is strategically located so it can serve customers in Arizona, California, and New England. In addition to serving these markets, SG has a second location in Los Angeles.
One advantage of outsourcing is the ability to control inventory levels. In a traditional warehouse, there is a high risk of inventory shrinkage. Outsourcing allows the company to keep their inventory levels at a high level. Since the company is a distributor, it needs to maintain a 99% customer fill rate. Moreover, the cost of ordering inventory can be eliminated as well.
Outsourcing allows the company to maintain its inventory levels at a minimum and comply with a 99% customer fill rate. Outsourcing allows a manufacturing firm to increase its level of inventory while still maintaining its own level of quality and service. Outsourcing also frees up staff resources by allowing it to concentrate on innovative design and superior customer service. The company’s policies are in line with the company’s mission statement, focusing on the development of durable products.
Besides the benefits of having more warehouses, a third-party warehouse is more affordable than an in-house warehouse. The logistics partner will pay the warehouse’s rent, but the costs will be shared between the two companies. This way, the three companies will share the risk of operating expenses and can improve the efficiency of the business. Choosing a third-party provider will also benefit the company’s inventory management.
Disadvantages of Outsourcing Warehouse
The first disadvantage of outsourcing warehouse is the increased cost. Outsourcing warehouse would result in a higher cost than hiring employees to manage inventory. Furthermore, the new workforce would require more time to replenish the inventory. In addition to this, they will have to invest in new equipment to handle the increased volume. Outsourcing warehouses would be a better choice for the company. Then, they can focus on other important business priorities.
Another disadvantage is that it’s impossible to predict the future. The business environment is constantly changing. They cannot expect the future to look exactly the way they want it to, which is why they need a reliable partner. It will help the company in avoiding expensive mistakes and making surethat the supply chain is optimized. Outsourcing warehouses will also enable them to reduce the inventory management costs.
While outsourcing warehouse may save the company money, it also comes with risks. Because business environments are dynamic and unpredictable, it is difficult to predict everything. It is difficult to predict the future and the impact of a particular decision on the business. If they are unsure of their decision, they need to consider all the factors that may affect the outcome of the project.
Alternate 3- Use Optimal Service Level
The Company also have the third alternate where they are considering to carry on the existing policy with a slight change i.e. warehouse managers will work over the strict control by the office and company also make sure to discourage them from storing more than sufficient amount of inventory. There is chance that company may face managers opposite reaction towards this change and the Appendix 4 also shown the cost effect which company may bear if company adopts this policy but the minimum amount of inventory is required in this case because managers are obliged to store only the required inventory rather than storing on the bases of mass productions.
Advantages to Use Optimal Service Level
Optimal Service Levels help a business improve the speed of inventory management. By improving the efficiency of the controlling systems, they will have a better understanding of the current situation and the company’s inventory. Further, they will have a better understanding of what is happening at the company. They can also increase the responsiveness of their services to customers by reducing the inventory levels.
Optimal Service Levels will help the business keep its inventory levels at the right level. If they are in the process of making an order, they will need to be aware of the inventory balances of their suppliers. When they are ready to place the order, they can rest assured that the shipment will arrive on time. If the product is out of stock, they will have a better chance of achieving an excellent customer service experience.
With the use of Optimal Service Level (OSS), a company’s inventory will have the ability to meet the needs of its customers in the most efficient and effective way. By focusing on the needs of its customers, SG will be able to improve its customer service and sales. The company’s stock level is a reflection of its culture. Its employees are the backbone of the company.
Disadvantages to Use Optimal Service Level
The first disadvantage is that SG cannot handle 60-day supply. It may not be the best option for the business. But if they need a 90-day supply, SG is a good choice. Besides, it helps to increase the sales and focus on marketing issues and developing new products. A better control system will help them to understand the current situation and plan accordingly.
Recommendation and Conclusion
The main issue the company wanted to mitigate is to reduce the level of increasing inventory and according to the results mentioned in appendices Ava Beane should propose the alternate 3, which is “Using Optimal Service Level” rather than adopting alternate 1 and 2, because in alternate 1; the level of inventory is not reduced also the cost is significantly high, In alternate 2 of outsourcing, the cost is relatively low but the main issue that is to reduce the inventory level, is not rectified and Appendix 5 where mean and standard deviation of all the alternates shows the overall stock level and comparison. It is now concluded with the recommendation given to Ava Beane that she should adopt the alternative 3, which is Using Optimal Service Level. It is suggested on the basis of level of inventory rather than cost of the plans proposed.
In addition to this, by using an optimal service level, it has been identified that it can significantly reduce the inventory problems. It is especially useful in situations where inventory levels are fluctuating rapidly, because the use of sub-optimal policies can lead to inflation in inventory costs. At the same time, the complexities of supply chains and rising customer expectations complicate the task of optimizing the inventory levels. In this case, it becomes difficult for planners to review the data in real-time. The use of optimum service level can alleviate these issues by making the process of optimizing the order levels as dynamic as possible.
It is further identified that the use of optimal service levels can also significantly decrease the number of dead stocks. The optimum service level is a function of the inventory levels. In other words, the more service-level a retailer offers, and the lower the risk of stock outs is. The same inventory can satisfy multiple demands, which reduces the need for additional inventory. Therefore, this process is beneficial for both the buyer and the retailer.......................
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