Scientific Glass, Inc.: Inventory Management
In this case study, production and operations management (POM) issues of a mid-size company, named as Scientific Glass Inc., in a highly growing market are studied. Using the background information on past actions of the company to correct inventory management and their results, and considering the market leadership opportunity, how inventory management approach can be made better is explained by evaluating different alternatives from different aspects. In the first part, critical POM issues are mentioned, following that these problems are analyzed. In the third part, alternative options are listed and then they are evaluated. Finally, considering the trade-offs of these evaluations, a conclusion is made. And it must be mentioned that, throughout the case, related points are referenced to the case text and lecture notes with corresponding page and paragraph numbers.
CRITICAL POM ISSUES
As mentioned in the text, there is an identified increasing trend in the balances of inventory levels. For a growing company in a growing market, this high inventory level, in other words tied up money in the inventory, creates an obstacle for this company to use this extra capital on other areas, such as expansion to international markets. Also, as mentioned, debt to capital ratio exceeded the target level of 40% and with the same approach this increase of this ratio also jeopardizes the company’s funding expansion plans to international markets. Although, there are many other POM issues are found in the text, these mentioned two were the most critical ones and it is thought that if they are solved the other problems will be solved spontaneously.
ANALYSIS OF THE CRITICAL POM ISSUES
In the last part, it is mentioned that average inventory level is high enough to jeopardize company’s future plans. Therefore, main reasons behind this problem should be analyzed. First of all, company has a policy related to 99% fill rate, which is also open to discussion considering the market average of 92%, and warehouse managers are usually exceed even this limit and they are keeping more inventory than necessary. Secondly, company has a policy to not to exceed 60 day’s supply, which is also open to discussion, and most warehouse managers are exceeding this upper limit. Considering all these aspects, it is found that inventory levels and transshipment costs should be decreased and at the same time responsiveness to customer should be increased in order to be a market leader. By doing these, simultaneously, approach of the warehouse management could be changed to a better position by changing policies related to them as it is tried in the past with different ways and failed. In addition, when this inventory level kept under control, debt to capital 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 aspects to consider: firstly, number of warehouses and their structure can be changed; secondly, related policies can be changed and of course appropriate ones can be done simultaneously. For changing the number of warehouses, in other words, centralizing or decentralizing warehousing functions, available options are considered as: Continuing with 8 warehouses: This option makes no change on the network of the warehouses 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 at Waltham will send all customer orders from one location. Two centralized warehouses: In this option, addition to the main warehouse at Waltham, there will 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...
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