LAHORE SCHOOL OF ECONOMICS

WAC NO: 3

MBA 2

SECTION: B-II

GROUP 1 :
ALI HAIDER
AMNA FAYYAZ
HOORIA ADNAN
NEHA JAVED
SARA KHAN
HASSAN WAQAS KHAN SIAL

DATE: March 16, 2015

SCIENTIFIC GLASS

Q1) What are the problems facing Scientific Glass in January 2010?

SG treated inventory management largely as an afterthought. Inventory balances were

increasing significantly as exhibit 1 shows that inventory almost doubled from 4.9 to 8.7 with
an increase of 77.5% This tied up the extra capital that the company required to fund its

growing operations.
The company had crossed its target debt to total capital ratio of 40%.
SG followed a two-week order cycle and had a one week in transit time on most of its
products, so if a product was not available at a warehouse, a customer might have to wait as

long as three weeks for the shipment to arrive. This decreased the service level.
Company policies regarding target inventory levels at the warehouses were regularly

violated.
Shipping and inventory holding costs were steadily rising at the company.
There was a mismatch between computer records and actual inventory due to human error
such as incorrect processing of returns, improper tracking of warehouse, inaccurate order

fulfillment etc.
The time required to track down the products and the time and cost of the inter-warehouse

transfer absorbed much of the profit from the sale.

SGs operations were under a heavy strain from the past two years, trying to keep up with

SGs sales growth and producing adequate inventory to stock warehouses.

In addition, competitive pressures were accelerating and some markets in Europe and North
America were becoming saturated.

Q2) How much funding has to be raised in 2010 to finance operations? (53.8 million written
in a case solution)

Q3. Illustrate the relationship between number of warehouses and inventory levels via SG's
problems.
Problems at Scientific glass capture the relationship between warehouses and inventory levels in
way that high the inventory levels higher would be the cost associated for e.g. managers at
Scientific glass kept higher levels of inventory due to the company's program of compensation to
achieve 99% fill rate. Whereas the industry standard was 92%. As a result of which inventory
holding /carrying costs, shipping costs and transit costs all were high. This also reflects in the
problem that the company's debt to total capital ratio has significantly increased to 40% and their
inventory control policies.
SG operated a two week order cycle and incase a product was not available at the warehouse the
customer had to wait for as long as three weeks for the arrival of the shipment. This also took a
toll on its profits. 10% of the gross margin was lost in case a product wasn't available at the
warehouse. This shows the relationship between the number of warehouses and inventory levels.
That lower the warehouses high the risk of stock outs. Also the risk of bad service levels goes
up.
High inventory levels and centralized monitoring process from the Waltham warehouse also
increased the possibilities of human error, back orders & return processing , faulty order
processing , obsolence and shrinkage cost. In SG's case in addition to the 1% shrinkage cost the
actual and the computerized inventory did not match as a result of which physical tallying of the
goods had to be done which further took a toll on the company's profits and overall operations
efficiency

Q4) What alternatives are available for dealing with inventory problems? What actions
should Beane propose?
1. Centralized warehousing in Waltham
It will facilitate Scientific Glass by stock pile up and cater the demand effectively but on the
other hand customer response time is likely to increase as well.

2. Decentralized Warehousing
There would be an additional warehouse in Dallas apart from the central warehouse. This
would minimize the chances of stock outs and would help in meeting the demand for all the
regions.
3. Continuing with 8 warehouse
This would allow each region to have its own warehouse and every regions demand will be
dealt by its specific warehouse. However, this would increase the cost immensely.
4. Outsourcing of warehouse to Global logistics
Warehousing can be outsourced to GL, this will allow SG to transport the inventory in bulk
from Waltham to Atlanta where the warehouse will be located. In this way SC would reduce
its cost of Rent and would be able to save time to invest it on other operations and to look for
the opportunities for introducing new products. The responsibility of transporting the
inventory and to deliver it to the customers will lie on Global Logistics.

Ave Beane should propose the following actions to Eric Gregory and Melissa Hayes:
1. Centralize the warehouse in Waltham so as to satisfy the regional demand of the
Southeast and Northeast region with the help of utilizing Winged Fleet delivery service
because of the cheaper rates that they offer. (as shown in exhibit 2)
2. Outsource warehousing to GL as it provides the cheapest rates and would result in
reducing the shipping cost for the regions like Southeast & Northeast.
3. Inventory and control procedures must be reviewed and monitored periodically for every
stock in the warehouse.
4. Fill rates must be reduced to industry average so as to decrease the level of inventory.