Scientific Glass

QUESTION #1

Provide an assessment of SG’s current situation (Using exhibit 1 compare inventory growth to sales growth and compare inventory turns too). What are the main culprits for the current situation?

Current Situation:

Eric Gregory championed a major initiative within Scientific Glass Inc. over the past three years. Gregory strongly believed that in order to maintain an edge on the competition, the company had to provide the “gold standard” for customer responsiveness. This initiative resulted in SG adding six new warehouses to its North American operation and incentivizing staff to reach a 99% service level target. As a result, SG has encountered significant inventory problems. Based on having excess inventory on hand, SG is currently carrying a debt-to-capital ratio greater than their target of 40% and this is jeopardizing their opportunity for expansion into foreign markets.

The Numbers:

Inventory Growth between 2008 and 2009 | 77.6%. |

Sales Growth between 2008 and 2009 | 32.8%. |

Inventory Turns in 2008 | 13.26 |

Inventory Turns in 2009 | 9.92 |

The Main Culprits:

1) Company policies regarding target inventory levels at warehouses were regularly violated. This is partly due to incentivizing manufacturing, operations, and warehousing staff to meet a 99% service level target. Managers were maintaining excess inventory to ensure they would meet service targets. Beane’s research revealed approximately 10% of SG’s product lines were maintaining more inventory than required for the 99% service level. There was no discussion in the case of why the company desired a 99% service level. The case only mentions that Gregory wanted this level of service because he thought it helped maintain an edge over the competition even though SG already exceeded the industry standard of 92%.

2) The Waltham warehouse, which was expanded in 2006 due to anticipated growth, is only being used at a fraction (don’t know what that fraction is)...