PGPBL | SECTION B | GROUP 07

Submitted By:
Name Roll Number Contact Number Email Id
Aadhar Hasija PGPBL0134 +91- 9159876096 aadharh01bl@iimk.ac.in
Deepak Kumar Giri PGPBL0142 +91-9717246325 deepakg01bl@iimk.ac.in
Kamal Singh PGPBL0146 +91- 9781906463 kamals01bl@iimk.ac.in
Karthika Warrier PGPBL0147 +91-9535514030 karthikaw01bl@iimk.ac.in
Options in Warehousing Functions
The issues with inventory management can be handled by implementing some structural
changes as mentioned in the case:
 One centralized warehouse: SG will maintain a single centralized warehouse near
the manufacturing location, Waltham and service entire customer demands (for all the
regions.)
 Two warehouse structure: With two warehouses, SG can pool the demand from east
and west regions. This can be done by adding one more warehouse in west (apart
from the current warehouse in Waltham), which is in the east region. The demands
from the central region can be serviced from these two warehouses.
 Retain all 8 warehouses: Each warehouse will be service the demand within its own
region and will function independent of each other. (Current scenario)
 Outsource to Global Logistics: SG can outsource the warehouse and distribution
function to Global Logistics (GL), who will service the entire demand. This option
implies retaining one centralized warehouse in Atlanta.

Evaluating the Options

Analysis based on the data provided in Exhibit 3 & 5, the transportation costs, average
inventory levels, total inventory cost and the total cost for the proposed options were as
follows:
(The detailed calculations for the below evaluations are available in the attached excel sheet)

 Transportation Costs

With 8 Warehouses (highest) 3101.047

With 2 Warehouses 2467.673
With 1 Warehouses 3161.264
With Global Logistics Outsourcing (lowest)1816.666

 Reducing Inventory Levels

As already discussed in the class, 1 warehouse with optimal service level will give the
maximum inventory level reduction.

Griffin 500ml Beaker Erlenmeyer 500ml

Flask
Optimal Service Level 95.8% 95.3%
With 1 Warehouse, optimal SL 41.3% 51.1%

 Total Inventory Holding Cost in ($)

 With 8 Warehouses (highest) 454.8154
With 2 Warehouses 227.3616
With 1 Warehouses 160.7452
With Global Logistics Outsourcing No SG Managed Inventory

 Total Order Cost in ($)

With 8 Warehouses (highest) 454.8154

With 2 Warehouses 227.3616
With 1 Warehouses 160.7452
With Global Logistics Outsourcing No SG Managed Inventory
*Assuming Relative Weightage of the two products by sales = 76.8% of Griffin
Beaker and 23.2% of Erlenmeyer Flask.

 Total Annual Cost

Total Cost = Order Cost + Inventory Cost + Transportation Cost

With 8 Warehouses (highest) 4010.678

With 2 Warehouses 2922.396
With 1 Warehouses 3482.755
With Global Logistics Outsourcing (lowest) 1816.666*
*No SG Managed inventory in case of outsourcing to GL

Recommendations
From our analysis of this case, outsourcing to Global Logistics seems to be the most cost
efficient option due the following parameters:
 Inventory holding costs are low

 Warehousing operation expenses is negligible

 SG managed Inventory is Zero.

 Better fill rate at lower cost

 Global Logistics will bear the insurance cost of the inventory

By outsourcing warehousing, inventory management & order fulfilment, SG’s senior
managers would be freed up to invest their time and focus on increasing SG sales,
understanding emerging customer needs & trends, and developing the next generation of the
firm’s products.
With this outsourcing model, and cost saving, SG will be able to expand to other markets by
easily replicating the business model.

2
Transportation Cost Analysis:

3
Inventory Holding Cost Analysis:

Inventory Level Reduction Analysis: