I.

INTRODUCTION 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 backgroundinformation on past actions of the company to correct inventory management and their results, andconsidering the market leadership opportunity, how inventory management approach can be madebetter is explained by evaluating different alternatives from different aspects. In the first part, criticalPOM issues are mentioned, following that these problems are analyzed. In the third part, alternativeoptions are listed and then they are evaluated. Finally, considering the trade-offs of these evaluations, aconclusion is made. And it must be mentioned that, throughout the case, related points are referenced tothe case text and lecture notes with corresponding page and paragraph numbers. II.

CRITICAL POM ISSUES As mentioned in the text, there is an identified increasing trend in the balances of inventorylevels. (Page 1, para. 2) For a growing company in a growing market, this high inventory level, in otherwords tied up money in the inventory, creates an obstacle for this company to use this extra capital onother areas, such as expansion to international markets. Also, as mentioned, debt to capital ratioexceeded the target level of 40% and with the same approach this increase of this ratio also jeopardizes the companys 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. III.

ANALYSIS OF THE CRITICAL POM ISSUES In the last part, it is mentioned that average inventory level is high enough to jeopardize companys 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 marketaverage of 92%, and warehouse managers are usually exceed even this limit and they are keeping moreinventory than necessary (Page 4, para. 5). Secondly, company has a policy to not to exceed 60 days supply, which is also open to discussion, and most warehouse managers are

exceeding this upper limit (Page 5, para. 6). Considering all these aspects, it is found that inventory levels and transshipment costsshould be decreased and at the same time responsiveness to customer should be increased in order to bea market leader. By doing these, simultaneously, approach of the warehouse management could bechanged to a better position by changing policies related to them as it is tried in the past with differentways and failed (Page 6, para. 6). In addition, when this inventory level kept under control, debt tocapital ratio will be saddled since extra capital tied up in the inventory will be available to be used. IV.

ALTERNATIVE OPTIONS FOR PROBLEMS In order to solve the analyzed problems in the previous part, there are actually two main aspectsto consider: firstly, number of warehouses and their structure can be changed; secondly, related policiescan be changed and of course appropriate ones can be done simultaneously.For changing the number of warehouses, in other words, centralizing or decentralizing warehousingfunctions, available options are considered as:

Continuing with 8 warehouses: This option makes no change on the network of thewarehouses 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 atWaltham will send all customer orders from one location.

Two centralized warehouses: In this option, addition to the main warehouse at Waltham, therewill 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 region will be met fromPhoenix and demand of central region will be met from both warehouses, assuming to haveequal shares on the central region.

Outsourcing the warehousing functions: In this option, all warehousing actions will beoutsourced to Global Logistics (GL) and distribution will start from main warehouse atWaltham and then GL will be responsible from rest of the operations.

In addition to these options, there are some policy change proposals which try to make POMapproach better, like periodic audits and increasing reporting activity levels, stopping trunk stock activities etc. Since these policy changes can be applied at different warehousing functions theseproposals will be analyzed one by one and their possible effects will be considered.

3 V.

EVALUATION OF ALTERNATIVE OPTIONS Evaluation of mentioned alternatives will be conducted from mainly five aspects: transportationcosts, average inventory levels, time responsiveness, fill rates and finally additional costs and benefits. 1-) Transportation Costs: Transportation costs for alternatives are calculated for the two products,namely Griffin and Erlenmeyer, since they are mentioned as the best representative for a total of nearly3000 products of Scientific Glass (Page 2, para. 3). In addition, for each option, demand for the nextyear calculated considering the 20% increase in sales (Page 8, para. 3). When warehouse to customershipments are considered average shipment weight of 19,5 pound is used and to have an average transportation cost value, these two products costs are averaged according to their relative proportion in sales (Page 8, para. 3). It also be mentioned that, inter-warehouse transshipments occur only whenstock-out occurs and as the number of warehouses are decreasing, effect of this costs will bediminished; therefore, it is only considered in the option where there are 8 warehouses.For the first option, having 8 warehouses and making no change, from Waltham to all other 7warehouses all items are sent by bulk shipment. Inter-warehouse transshipments are calculated by bulk shipment

rates and they are considered only when a stock-out occurs, therefore fill rate is included inthese calculations. Finally, for every warehouse, customer shipment costs are calculated as all tabulatedin Appendix Table 1 and average total cost found as $2701,41.For the second option, when there is only one warehouse, all customer shipments are calculatedfor rates of Winged Fleet and results are given in Appendix - Table 2. In this option, average total costis calculated as $12210,16.For the third option, when two centralized warehouses considered, it is assumed that Walthamwill supply east region, Phoenix will supply will west region and they will equally supply the centralregion. With this approach, transportation costs are calculated in Appendix Table 3 and average totalcost is found as $2332,07.For the last option, when warehousing functions are outsourced, assuming the 5 regions of Global Logistics (GL) will have equal amount of demand, as tabulated in Appendix Table 4, totalaverage cost is calculated as $2276,83.To conclude, as it is expected, when number of warehouses are decreased transportation costsare increased as can be seen from the Table 1 below. From the aspect of transportation costs, GL optionhas the smallest cost amount 4 8 Warehouses 1 Warehouse 2 Warehouses Outsourcing 2701,41 12210,16 2332,07 2276,83 Table 1: Average Total Annual Transportation CostsGathered from Appendix Table 1-2-3-4 2-) Average Inventory Levels:

First of all, it must be decided which inventory policy that thecompany should apply. Begin with the review type; although firm monitors all the inventory transfersfrom Waltham warehouse to other warehouses; they think taking physical counts of inventory at allwarehouses (Page 6, para. 6). Therefore, it is concluded that company uses periodic inventory reviewpolicy. Secondly, company did not mention any due date, therefore the inventory plans should considerinfinite time horizon. And lastly, although there exists a fixed cost for shipments from warehouses tocustomers; there is no other fixed cost related to transportation to the warehouses, i.e. no fixed orderingcost. The only order cost is $0.40 per pound bulk shipment cost which is a variable cost with weight.As a result, all analysis can be conducted considering critical ratios and the related fill rate values,which is the only option that is left and also it is considered as the most applicable to the situation.Since some of the simultaneous changes can be done, considering ceteris paribus principle andwhen fill rate is maintained exactly as 99% for all warehouses, we can calculate the average inventorylevel that must be kept at warehouses. As shown in the Appendix - Table 5, for having 1, 2 and 8warehouses

average inventory levels are calculated for two representative products. When outsourcingoption is used, it will be the same for the company in the sense of kept inventory levels for the onecentralized-warehouse option therefore they are assumed to be equal. Weighted-average biweeklylevels are found as: 8 Warehouses 2 Warehouses 1 Warehouse Outsourcing 988,53 680,34 597,03 597,03 Table 2: Weighted-average biweekly inventory levelsGathered from Appendix - Table 5 As shown in the Table 2 above, as demand aggregates, in other words, number of warehouse decreases, level of inventory decreases as it is expected. This is because, the greater the degree of collaboration, the lower the uncertainty (standard deviation of the error or coefficient of variation) of the demand model (Lecture 9, Slide 6). This implies that the money tied up in the inventory decreasesand this extra capital can be used in other areas, like expansion plans to international markets.