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Anurag Ghosh (16PGDMBFS08)

Deepanshu Bhanot (16PGDMBFS20)


Kaavya Jain (16PGDMBFS28)
Saurabh Joglekar(16PGDMBFS46)
Shirsendu Bikash Das(16PGDMBFS48)
Suhag Patel (16PGDMBFS56)

Exhibit 1: Select Income Statement and Balance Sheet Values ($MM)


Income Statement Accounts
Net sales
Expenses
Cost of goods sold
Sales, general and administrative
Research and development
Depreciation
Other expenses
Operating expenses
Interest expense
Taxes
Net earnings

2008

Balance Sheet Accounts


Assets
Cash
Receivables
Inventory
Prepaid expenses
Current assets
Plant property and equipment
Other long term assets
Total long term assets
Total assets
Liabilities & Equity
Short term debt
Accounts payable
Accrued liabilities
Current liabilities
Long term debt
Owners equity
Total capitalization
Total liabilities & equity

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

Exhibit 2: 2009 Sales by product category


Product category
Containers (bottles, flasks)
Measuring devices (beakers, pipettes, cylinders)
Fittings (stoppers, adapters)
Funnels
Handlers (stirrers, forceps, trays)
Tubes
Other
Total
Number of orders
Average number of units per order
Average sales per order
Average weight per order (pounds)

Units sold (000's)


2,321
1,283
442
185
1,732
4,420
18
10,401

119,855
87
720.36
9.8

Average price ($)


15.89
8.98
11.01
12.63
5.89
4.55
23.41
8.30

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%

Exhibit 3: Information on Representative Products

2009 units sold


Percent of all units sold
Annual carrying cost (%)
Unit price
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)

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

Exhibit 5: Weight and shipping costs for typical products (2009)

Product category

Pounds/case
3.00
0.75
1.88
1.88
0.94
1.25
0.13

Containers (bottles, flasks)


Measuring devices (beakers, pipettes, cylinders)
Fittings (stoppers, adapters)
Funnels
Handlers (stirrers, forceps, trays)
Tubes
Other
Total
Shipping costs for Global Logistics and Winged Fleet
Global Logistics (3-day rates)
Weight (pounds)

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)

Within region fee


Across 1 region fee
Across 2 regions fee
Weight fee

$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

Centralized warehousing in Atlanta with Global


Bulk transport: Waltham to Atlanta
Global Logistics: Atlanta to Dallas customer
Total

$
$
$

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

$
$
$
$

Delivery from Atlanta to:


Central
Southwest
8.60 $
9.46 $
13.70 $
15.07 $
22.25 $
24.48 $
36.50 $
40.15 $

Northwest
9.89
15.76
25.59
41.98

Exhibit 6: Inventory Balance Detail ($MM)


Raw materials / work in process inventory
Finished goods inventory
Manufacturing site
North American warehouses and in transit
Overseas warehouses and in transit
Total finished goods
Total inventory

December 2009
2.18
0.20
4.44
1.90
6.54
8.72

Exhibit 6: Inventory Balance Detail ($MM)


December 2009
Raw materials / work in process inventory

2.18

Finished goods inventory


Manufacturing site
North American warehouses and in transit
Overseas warehouses and in transit
Total finished goods

0.20
4.44
1.90
6.54

Total inventory

8.72

Inventory turnover ratio

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.

the next year is


houses.

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)
Cost of underage/unit
Cost of overage/unit

Griffin 500ml
Beaker
54.2
21.4
216.7
38.3
433.4
51.0
$
0.48
$
0.021

Griffin 500ml Beaker


Warehouses
8
2
1

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

Transit time-L (week)


Service Level
Z

99%
2.32634787

2009 units sold


Percent of all units sold
Annual carrying cost (%)
Unit price

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

Erlenmeyer 500ml Flask for 99% service level


Average
Demand
Warehouses
(BiWeekly) Average SD
8
16.3
10.9
2
65.2
19.5
1
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

Erlenmeyer 500ml Flask for 95% service level


Average
Z value
Demand
for
Warehouses
(BiAverage service Stocking
Weekly) SD
level
level
8
16.3
10.9 1.727934 35.16231
2
65.2
19.5 1.727934 98.8678
1
130.3
26.0 1.727934 175.2724

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

Weight and Shipping Costs


Product Category

Pounds/case

units/case

average
price/cas
e

Containers (bottles, flasks)


Measuring devices
Fittings
Funnels
Handlers
Tubes
Others
Total

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

Avg. inventory per warehouse 1798708.3333333

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

Global Logis Delivery from


Southeast
$6.46
$10.28
$16.69
$27.38

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

Logis Delivery from Atlanta to:


Northeast
Central
$7.31
$8.60
$11.65
$13.70
$18.91
$22.25
$31.03
$36.50

Southwest
$9.46
$15.07
$24.48
$40.15

alized Warehouse in Waltham


fleet there 4 regoins(North, Central, West and East)
2010
351197.00
$838,866.52
$587,171.02
$3,103,770.58
$ 2,590,140.00
$ 5,693,910.58

Northwest
$9.89
$15.76
$25.59
$41.98

Winged Fleet 3 day rates


Regions West, Central, East
Within region fee
$5.00
Across 1 region
$12.00
Across 2 region
$16.00
Weight fee per pound
$1.16

Product Category
Containers (bottles, flasks)
Measuring devices
Fittings
Funnels
Handlers
Tubes
Others
Total

Weight and Shipping Costs


average
Pounds/case
units/case
price/case
3
12
190.7
0.75
6
53.9
1.88
20
220.2
1.88
12
151.6
0.94
20
117.8
1.25
20
91
0.13
1
23.4

for 8 regions
2009

Total orders

119855

2010

143826

per region order

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

Avg. inventory per warehouse 1798708.33333

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

Global Logis Delivery from Atlanta to:


2009
Demand
(Pounds)
34131.2
34131.2

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

Global Logis Delivery from Atlanta to:


Southeast

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

Outsourccing warehousing function


in Atlanta and we have first tansfer our product to Atlanta from Waltham
2010

561,915.20

y from Atlanta to:


2009
2010
Cost (As average
Cost (As average
Demand(Poun
weight 9.8
weight 9.8
ds)
pounds)
pounds)
$17,543.44
280957.6
$144,412.21
$19,881.42
280957.6
$163,657.80
$23,379.87
280957.6
$25,717.86
280957.6
$26,895.39
280957.6
$113,417.98
2,158,450.00 $
$2,340,130.38

$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

n Q3(A) the cost is


ers are already
r company. As per
he service level of
e level of 99% and

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

by 99% service level target.


mal service levels of 95.8%
e to the increased number of
implement the policy change
by the 99% service level

in stock actually keeps the


ny should aim at reducing
or that matter the industry

mal service levels which is


he company. Reducing the
not very high the company