Scientific Glass, Inc : Inventory Management Essay

Futronics Inc. is a $2 billion firm that sells communications services. Founded in 1937, Futronics Inc. has provided consumer products, as well as government systems and services, for well over half a century. Due to a sharp increase in competition, flattened sales, and external economic conditions, Futronics Inc. is implementing a corporate overhead reduction program. The proposal is to replace the company’s central office stores with outside vendors. The investment will cost $1,000,000 and yield incremental cash flows of $450,000 in year one (1), $350,000 in year two (2), $300,000 in year three (3), and $250,000 in year four (4). There is no salvage value of the asset, and the firm has a cost of capital of 8%. Using capital budget methods, Net Profit Value, Internal Rate of Return and Payback method, the capital investment can be appraised. Futronics Inc.

Based on the Exhibit 9A in the case, we can calculate the Source and Use of Funds. As Exhibit 1 suggests, the company require about $4.8 billion during 1984 and 1990. This is basically due to the required new capex during the same period, which will be accumulated to $10.2 billion, and the increase of cash holding, $2.0 billion, as a use of funds and the company can generate funds from operation, only $7.8 billion. Therefore, the company needs to fill the gap by sourcing external finance of about $4.8 billion. This amount will vary depending primarily on two factors; 1) whether MCI can expand market share as forecasted amid the increasing

The budget analysis shows that the labor hours of the firm are higher than the budgeted amount. As such, the firm needs to evaluate the cost benefit analysis of making or buying their products. To make this decision, various factors need to be considered. Before making the decision, Peyton needs to evaluate the marginal costs and revenue of making versus buying the products. The firm should take the option which provides the highest marginal profit which is the

| |iv. Service quality cost savings – Controllable and relevant – With the 6 supplier option the company saves $100,000 in|

* Least expensive of the three strategies due to the lack of excess inventory and employee overtime

Answer: It seems like Bridgeton and its consultants assumed that the savings from outsourcing those two products would be 435% of the direct labor dollar cost for those products - calculated amount $53,496.

After carefully reviewing the income statement, balances sheet and cash flow it seems that the company has a negative cash flow for 1998, so even before thinking about obtaining internal and external resources for long term investment, the company must assure resources for their own working capital.

This choice is because the last alternative is the best production combination that generate the higher profit for the company of all the 6 alternatives. This can be showing in the ranking below.

Evaluation of mentioned alternatives will be conducted from mainly five aspects: transportation costs, average inventory levels, time responsiveness, fill rates and finally additional costs and benefits.

Cartwright is a retail distributor of lumber products. It built its competitive edge based on pricing and having a careful control over its operations. The company reported an operating income of $86,000 and $111,000 in 2003 and 2004, respectively. This is a 29% increase in operating income in one year, which shows the firm’s strong ability to generate cash. The firm’s account receivables and inventory are increasing from year to year which is a good sign of a growing business. Cartwright is not an asset intensive company. It does not have to have huge fixed assets; most of its assets are cash, accounts receivable and inventory which all depend on future sales. Sourcing of materials is managed very well, purchased at discounts most of the time and contribute to having lower prices.

This then translates to a 50% chance of not having inventory available during job opportunities. Therefore, opportunity costs might occur. The indifference of the production managers' in these aspects of inventory control is alarming and should be acted upon.

We are still losing money after the second year. However, my group realized that new tooling was an important cost. Therefore, we start thinking how to reduce it. We find out that if the demand stays between 300,000 to 345,000 units, the supplier will not need new tools. Then, it will bring the cost of new tooling to 0 for the coming years. Let’s take the worst case scenario and try to compute the savings for year 3, if the pistons are outsourced.

Scientific Glass (SG) provides specialized glassware for a variety of organizations such as pharmaceutical companies, hospitals, research labs, quality-control sites and testing facilities. As of January 2010, there was a substantial increase in their inventory balances which tied up the capital necessary for further investment needed for expansion. The debt-to-capital ratio surpassed the target of 40% preventing the company to use their capital in other areas. In addition, the shipping costs were rising, competitive pressures were accelerating, and certain markets in North America and Europe were becoming saturated which underscored the necessity for capital investment

If we change to level monthly production, we can save up to $169,000. Mainly, this savings come from reducing overtime premium by $225,000 and other direct labor savings by $265,000. Although, the storage costs will increase by $115,000 but we still will end up with $169,000 as savings.

2) Since substantial amount of funds are locked in the form of the inventory the company’s growth is hindered in terms of expanding business by means of wine merchandising.