Case Study of Scientific Glass

1267 Words6 Pages
Scientific Glass, Inc. (SG), founded in 1992, was a midsize player in the industry that provided specialized glassware for laboratory and research facilities. Enjoying annual sales of $86 million for 2009 and an above-average growth in the industry, SG faced a constant challenge of competition with both large laboratory equipment providers and smaller glassware provider. To stay at leading position in such a highly competitive industry, the company had established its own dedicated direct sales force along with the attempt to increase customer service levels and improve customer response times by adding additional warehouses. By the end of 2008, in addition to the two original warehouses, SG had managed to bring on line six more…show more content…
Shipment costs between warehouses were also considered in case of occurrences of stocking out with a 99% fill rate.
For the eight warehouses option, average annual cost was $3,088.65; for the two centralized warehouses option, the cost was $2,055.28; for the one centralized warehouse option, the cost was $3,480.91 and for the outsourcing option, the cost was $2,678.61.
In the calculation of average inventory levels, a desired service level of 99% and a review period of 14 days with a lead time of 5 days were used to calculate the safety stocks and order-up-to-levels for each product under each circumstance. Then the amounts of overstock units were obtained by calculating the differences between OULs and average demands, and the overstock inventories were the overstock units multiplied by the unit cost. The annual average inventory levels were calculated to be $31,560.75 for the eight warehouses option, $14,120.28 for the two warehouses option and $9,403.24 for the one centralized warehouse option. As for the outsourcing option, the responsibility of inventory management would fall upon GL, so that there would be no inventories for SG.
In the calculation of optimal fill rates, 10% of the gross margin was calculated as the underage cost and 0.54% of the unit cost was calculated as the overage cost. However, with the outsourcing option, there were no costs due to loss
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