Scientific Glass (SG) provides specialized glassware for a variety of organizations such as pharmaceutical companies, hospitals, research labs, 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 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.
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...