Scientific glass Inc.: inventory management case analysis
What are the problems facing SG in 2010?
One of the problems facing Scientific Glass in 2010 is that the inventory balances within the warehouses were increasing considerably, which resulted in the tying up of extra capital needed by the company to fund the growing operations (Wheelwright & Schmidt, 2011). The compensation program aimed at achieving 99% customer fill rate resulted in most warehouse managers holding higher levels of inventory than required. The policy needs to be considered to ensure that warehouse managers are not abusing it by keeping higher levels of inventory. The company has an inventory control policy not to exceed 60 days' supply, which is regularly violated. The trunk stock kept by the salespeople affected the inventory levels for their specific warehouse, which resulted in higher restocking requests. The stock held by the salespeople did not count towards their target warehouse stock, which necessitated warehouse manager to increase their inventory levels.
The centralized inventory system at Waltham warehouse was not capable of capturing the inaccuracies caused by stolen, damaged, and lost goods. The system was also prone to human errors like inaccurate processing of returns, erroneous order fulfillment, and improper tracking of warehouse transfers. This resulted in a mismatch between the actual inventory and the computer records. The initiative adopted by the...
Inventory levels have increased by 77.6% from 2008, but sales have only increased by 32.8%.
2. How do SG's problems illustrate the relationship between the number of warehouses and inventory levels?
The problems faced by Scientific Glass are mainly due to inventory levels. With the increase in the number of warehouses, the inventory demand increased because each warehouse manager wanted to maintain the 99% fill rate policy proposed by the company. Therefore, it is quite clear that there is a linear correlation between the number of warehouses and the inventory levels. The company increased the Waltham warehouse capacity, and opened up 6 other warehouses, which are all required to maintain the same inventory level. This meant that most of the company's funds were used for inventory stocking, which limits the company's attempts to grow operations. The warehouse managers also have a tendency to hold on to more than the required inventory levels in order to sustain the 99% service level target (Wheelwright & Schmidt, 2011). Holding more inventory levels than required results in increased inventory costs across all the warehouses. If the company only had one warehouse, and implemented the 99% service level target, the inventory levels would not be as high as they are currently and the manufacturing costs would be reduced.
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