Suppose the total value of 2010 inventory is $10 million and the increase in value of inventory required by Scientific Glass is $1.5 million.

Gregory and Hayes suggest four policy changes to reduce the value of the average inventory. For each suggested change below, estimate the savings that can be expected if the change is successfully implemented and discuss if the estimated savings can compensate for the increase of $1.5 million.

POU = Period of Uncertainty

r = review period

L = Lead time

D = Demand (Units per Period)

Q = Order Quantity

COGS = Cost of goods sold

SS = Safety Stock

Z = Z-value

a. It is estimated that for 10% of all products, Scientific Glass maintains too high of a service level. Assuming this high service level is 99.9% suppose the company enforces a strict 99% service level.

i. Using data from the case and Exhibit 3, complete the table below. (Hint: Refer to the solved

inventory problems document for additional examples)

Product	Griffin Beaker		Erlenmeyer Flask
Service Level	99%	99.9%	99%	99.9%
Z-Value	2.33	3.09	2.33	3.09
Average Weekly Demand
Stdev of Weekly Demand
POU (weeks)
Q
Average Pipeline Inventory
Begin on hand
SS
Average On-Hand
Average Inventory

ii. Calculate the percentage saved in the average Inventory by lowering the service level from 99.9% to 99% for each product.

iii. Estimate the total inventory savings by taking a simple average of savings for the two representative products and applying this average to the 10% of products. Assume that 10% of products account for 10% of the 2010 inventory value of $10 million.

iv. Comment if the calculated savings compensate for the estimated $1.5 million increase in inventory.

b. Elimination of Trunk Stock. Assume that the number of salespeople remains constant at 32, and all the salespeople currently maintain the maximum allowable trunk stock. Estimate the savings obtained by eliminating the trunk stock and comment if the calculated savings compensate for the estimated $1.5 million increase in inventory.

Exhibit 3 Data -

Exhibit 3: Information on Representative Products
	Griffin 500ml Beaker	Erlenmeyer 500ml Flask
2009 units sold	11,268	3,389
Percent of all units sold	0.1%	0.03%
Annual carrying cost (%)	14%	14%
Unit price	$ 8.80	$ 9.50
Unit cost	$ 3.96	$ 4.56
Cost of underage	$ 0.48	$ 0.49
Cost of overage	$ 0.021	$ 0.025
Optimal service level	95.8%	95.3%
Average bi-weekly demand (8 warehouses)	54.2	16.3
Standard deviation of bi-weekly demand (8 warehouses)	21.4	10.9
Average bi-weekly demand (2 warehouses)	216.7	65.2
Standard deviation of bi-weekly demand (2 warehouses)	38.3	19.5
Average bi-weekly demand (1 warehouse)	433.4	130.3
Standard deviation of bi-weekly demand (1 warehouse)	51.0	26.0

c. Creation of daily/weekly inventory reports. Discuss the amount of savings that can be obtained (a qualitative answer is sufficient). Would this be sufficient to overcome the expected $1.5 million inventory increase? (0.5 point)

d. Periodic physical audits. Estimate the maximum potential savings that can be obtained (a qualitative answer is sufficient, but it is possible to come up with a quantitative estimate using information in the case). Would this be sufficient to overcome the expected $1.5 million inventory increase? (0.5 point)