Professional Documents
Culture Documents
2008
2008
Months of inventory
Cost of goods sold / sales
Long term debt / total capital
2009
65.0
86.3
29.0
10.1
13.5
2.9
0.6
56.1
2.4
2.0
4.5
38.9
14.0
17.0
3.1
1.0
74.0
3.0
2.9
6.5
2009
3.2
3.0
4.9
4.8
15.9
28.5
2.7
31.2
47.1
3.4
4.0
8.7
6.1
22.2
32.9
4.3
37.2
59.4
2.7
2.3
0.4
5.4
17.2
24.5
41.7
47.1
3.2
3.0
0.5
6.7
21.7
31.0
52.7
59.4
2.028
0.446
0.412
2.690
0.451
0.412
119,855
87
720.36
9.8
Sales ($ 000's)
36,881
11,521
4,866
2,337
10,201
20,111
421
86,339
% of total sales
43%
13%
6%
3%
12%
23%
0%
100%
Griffin 500ml
Beaker
11,268
0.1%
14%
$
8.80
$
3.96
$
0.48
$
0.021
95.8%
54.2
21.4
216.7
38.3
433.4
51.0
Erlenmeyer
500ml Flask
3,389
0.03%
14%
$
9.50
$
4.56
$
0.49
$
0.025
95.3%
16.3
10.9
65.2
19.5
130.3
26.0
Product category
Pounds/case
3.00
0.75
1.88
1.88
0.94
1.25
0.13
Southeast
2.5 $
6.45
5 $
10.28
10 $
16.69
20 $
27.38
12
6
20
12
20
20
1
$
$
$
$
Northeast
7.31
11.65
18.91
31.03
Winged Fleet
3-day rates are calculated using region, fixed fee and weight fees
The regions are West (equivalent to Northwest and Southwest regions for Global Logistics),
Central, and East (equivalent to Northeast and Southeast regions for Global Logistics)
$5.00
$12.00
$16.00
$1.16 per pound
Shipping Comparison
Centralized warehousing in Waltham
Winged Fleet: Waltham warehouse to Dallas customer
Total
$
$
23.60
23.60
Decentralized warehousing
Bulk transport: Waltham to Dallas warehouse
Winged Fleet: Dallas warehouse to Dallas customer
Total
$
$
$
4.00
16.60
20.60
$
$
$
4.00
22.25
26.25
Average
Total pounds shipped in Forecast pounds shipped
price/case
2009
in 2010
190.7
580,250
696,300
53.9
160,375
192,450
220.2
41,438
49,725
151.6
28,906
34,688
117.8
81,188
97,425
91.0
276,250
331,500
23.4
2,250
2,700
1,170,656
1,404,788
Units/case
Notes
Cost for bulk shipments
$0.40 per pound
Aside from the capital cost to carry inventory in Atlanta, SG would not have any operating costs for Atlanta.
Global Logistics rates cover warehousing, insurance and delivery costs.
Regional warehousing costs are 15% of annual inventory in the regional warehouses
$
$
$
$
Northwest
9.89
15.76
25.59
41.98
December 2009
2.18
0.20
4.44
1.90
6.54
8.72
2.18
0.20
4.44
1.90
6.54
Total inventory
8.72
Cycle
cost(2009)
Total inventory in
warehouses(millions)
Rental cost on North
American
warehouses(millions)
Total Working Capital
required (millions)
6.34
Annual
(2009)
38.04
Cycle
cost(2010)
7.608
Annual
(2010)
45.648
5.706
6.8472
43.746
52.4952
So, the toal working capital rquird for the growth rate of 20% in the next year is
$52.4952 million plus the renal cost of overseas warehouses.
Griffin 500ml
Beaker
54.2
21.4
216.7
38.3
433.4
51.0
$
0.48
$
0.021
Average
Demand (BiWeekly)
54.2
216.7
433.4
Z value for
Average service
Stocking
SD
level
level
0.958
21.4 1.72793432 91.15087
0.958
38.3
#NAME? #NAME?
0.958
51
#NAME? #NAME?
Service level
Reorder Time-R(week)
2
1
99%
2.32634787
Griffin 500ml
Beaker
11,268
0.1%
14%
$
8.80
Unit cost
Cost of underage
Cost of overage
Optimal service level
Average bi-weekly demand (8 warehouses)
Standard deviation of bi-weekly demand (8 warehouses)
Average bi-weekly demand (2 warehouses)
Standard deviation of bi-weekly demand (2 warehouses)
Average bi-weekly demand (1 warehouse)
Standard deviation of bi-weekly demand (1 warehouse)
$
$
$
3.96
0.48
0.021
95.8%
54.2
21.4
216.7
38.3
433.4
51.0
Average
Griffin 500ml Beaker
for 99% service level
Demand
(BiWarehouses
Weekly) Average SD
8
54.2
21.4
2
216.7
38.3
1
433.4
51
Erlenmeyer
500ml Flask
3,389
0.03%
14%
$
9.50
$
$
$
4.56
0.49
0.025
95.3%
16.3
10.9
65.2
19.5
130.3
26.0
service level
Z value for
service
Stocking
Underage Overage
level
level
Cost
cost
cost
Total cost
2.326347874 103.95692143 $
411.67 $
50.32 $
2.22 $
464.20
2.326347874 305.79143127 $
1,210.93 $
148.00 $
6.52 $ 1,365.46
2.326347874 552.02835696 $
2,186.03 $
267.18 $ 11.77 $ 2,464.98
9% service level
Z value for
service
Stocking
level
level
Cost
2.326347874 41.696988015 $
2.326347874 110.53686047 $
2.326347874 190.83119857 $
Underage Overage
cost
cost
Total cost
190.14 $
20.60 $
1.02 $
211.76
504.05 $
54.61 $
2.71 $
561.37
870.19 $
94.27 $
4.69 $
969.15
Average
Z value
Griffin 500ml Beaker
for 95% service
Demand
for level
(BiAverage service Stocking
Warehouses
Weekly) SD
level
level
8
54.2
21.4 1.727934 91.15087
2
216.7
38.3 1.727934 282.8722
1
433.4
51 1.727934 521.5093
Underag Overage
Cost
e cost
cost
$
360.96 $ 44.12 $
1.94
$ 1,120.17 $ 136.91 $
6.03
$ 2,065.18 $ 252.41 $ 11.12
Total cost
$
407.02
$ 1,263.12
$ 2,328.71
Underag
Cost
e cost
$
160.34 $ 17.37
$
450.84 $ 48.84
$
799.24 $ 86.58
Total cost
$
178.57
$
502.11
$
890.13
Overage
cost
$
0.86
$
2.43
$
4.30
Pounds/case
units/case
average
price/cas
e
3
0.75
1.88
1.88
0.94
1.25
0.13
12
6
20
12
20
20
1
190.7
53.9
220.2
151.6
117.8
91
23.4
Total orders
per region order
8 regions
2009
119855
14981.875
2010
143826
17978.25
4 regions
per region order
Sales
Avg. inventory
Inventory turnover ratio
29963.75
35956.5
$ 86,338,000.00 $ 103,605,600.00
14389666.666667
17267600
6
6
2158450
Total
Forexast
pounds pounds
shipped shipped
in 2009 in 2010
580250
696300
160375
192450
41438
49725
28906
34688
81188
97425
276250
331500
2250
2700
170656 1404788
Weight (Pounds)
2.5
5
10
20
Centralized Warehouse
So, according to winged fleet there 4 regoins
2009
42664.00
Demand per region in pound
Cost per each region except North
$409,055.24
Cost for North region
$199,308.99
Total expense as per Winged Fleet $1,426,474.71
Warehouse Cost
$ 2,158,450.00
Total expense
$ 3,584,924.71
Southwest
$9.46
$15.07
$24.48
$40.15
Northwest
$9.89
$15.76
$25.59
$41.98
Product Category
Containers (bottles, flasks)
Measuring devices
Fittings
Funnels
Handlers
Tubes
Others
Total
for 8 regions
2009
Total orders
119855
2010
143826
14981.875
17978.25
for 4 regions
per region order
29963.75
35956.5
Sales
86338000
103605600
Avg. inventory
Inventory turnover ratio
14389666.6667
6
17267600
6
2158450
ts
Total pounds
shipped in
2009
580250
160375
41438
28906
81188
276250
2250
170656
Global Logis D
Forexast pounds
shipped in 2010
696300
192450
49725
34688
97425
331500
2700
1404788
Weight
(Pounds)
2.5
5
10
20
Outsourccing warehou
So, in this case warehouse is in Atlanta and we have first tansfe
Centralized
Warehouse in
2009
Atlanta
Bulk Transport:
Waltham to Atlanta
68,262.40
Southeast
Northeast
Central
Southwest
Northwest
Total
Warehouse cost
Total cost of
outsourcing
34131.2
34131.2
34131.2
$
2,158,450.00
$2,340,130.38
Northeast
Central
Southwest
Northwest
$6.46
$10.28
$16.69
$27.38
$7.31
$11.65
$18.91
$31.03
$8.60
$13.70
$22.25
$36.50
$9.46
$15.07
$24.48
$40.15
$9.89
$15.76
$25.59
$41.98
561,915.20
$192,455.96
$211,701.55
$221,394.59
$933,622.10
2,590,140.00
$4,085,677.30
As , we have seen as we increased our target service level from 95% to 99% in Q3(A) the cost is
increasing and for satisfying the customer and achievin target of 99% managers are already
keeping the inventory level of more than 99%. Which is increasing the cost for company. As per
the case, the industry average of service level is 92% and the company has the service level of
93% already. So, company should not think about achieving the target service level of 99% and
should try reducing the target service level
I would
like implement
proposed policy
changes and
thechanges
policy ofand
reducing
the target
serviceservic
leve
We would
recommendthe
implementing
the proposed
policy
the reduction
of target
level. The reasons are as follows:
1. The managers were found to keep higher inventory levels than required by 99% service level targ
When the service level of two of SG's products were raised from there optimal service levels of 95.8
and 95.3% respectively to 99% the cost of inventory spiked up. This was due to the increased numb
stock to be kept at a warehouse at any given point of time. Thus SG should implement the policy ch
to be strict on warehouses that maintain higher stock levels than required by the 99% service level
targeted by the company
2. Discontinuation of the practise of allowing sales people to maintain certain stock actually keeps th
capital of the comapny tied up. With a huge 14% cost of capital the company should aim at reducing
inventory levels which are already higher than the optimal service level or for that matter the indust
service level.
3. The company should also try and reduce its target service levles to optimal service levels which is
around the 95% mark, much lower than the 99% service level targeted by the company. Reducing th
service level would cut down inventory costs. Since the shortage costs are not very high the compan
should consider lowering the service levels to 95%.
g
the target
serviceservice
level
eduction
of target