Physical Inventory and Warehouse Management

1. Physical Inventory and Warehouse Management Chapter 12

2. Warehouses • Store inventory for a period of time • storage • protection • Inventory may be turned over rapidly • distribution center • customer service

3. Stores • Perform the same function as a warehouse for a factory • raw materials • finished goods • supplies • repair parts

4. Warehouse Activities • Receive goods • Identify goods • Dispatch goods to storage • Hold goods • Pick goods • Marshal the shipment • Dispatch the shipment • Operate an information system

5. Receive Goods • Acceptance of goods from outside transportation or an attached factory a. Check the goods against an order or bill of lading b. Check the quantities c. Check for any transit damage d. Inspect goods if required

6. Identify the goods • With appropriate stock keeping unit (SKU) number • With part number • Indicate the quantity

7. Dispatch Goods to Storage • Goods are sorted • Put away goods • record the location

8. Hold Goods • Storage is meant to protect the goods • cold • heated • explosive

9. Pick Goods • Goods are picked from storage • must be accessible • location records • Brought to marshalling area

10. Marshal the Shipment • All goods for an order are brought together • check for missing items • check for correct items • change order information if required

11. Dispatch the Shipment • The order is prepared for shipment and loaded on the right vehicle • protective packaging for shipment • documents prepared • loaded and secured

12. Operate an Information System • Need to know what is in the warehouse • quantity on hand • quantity received • quantity issued • location of goods • Computer based or manual system

13. Warehouse Management • Make maximum use of space • capital cost of space is very high • Make effective us of labor and equipment • material handling equipment is the second largest capital cost • need best mix of equipment and labor • all SKU’s should be easy to find • move goods efficiently

14. Warehouse Effectiveness • Cube utilization and accessibility • Stock location • Order picking and assembly • Packaging (discussed in Chapter 13)

15. Cube Utilization and Accessibility • Goods are stored on the floor and in the space above • Space also required for: aisles offices receiving order picking shipping docks order assembly • Need to know the maximum space required

16. Pallet Positions • Floor storage • Pallets are stacked on each other • Maximum stacking height • due to ceiling height • due to weight restrictions • Need to allow for side clearance

17. Pallet Spacing 40 inches 40 inches 2 inches clearance Total width required = 42 inches per pallet space

18. Pallet Spacing 6 x 42” ÷ 12 = 21 feet required to store 16 pallets stacked 3 high

19. Pallet Positions - Example Problem A company wants to store an SKU consisting of 13,000 cartons on pallets each containing 30 cartons. How many pallet positions are needed if the pallets are stored three high? Number of pallets required = 13,000 ÷ 30 = 434 pallets Number of pallet positions = 434 ÷ 3 = 144.67 or 145 Note one pallet position will contain only 2 pallets

20. Accessibility • The ability to get goods with a minimum of effort • without moving other goods • can be a problem with multiple SKU’s in one area

21. Cube Utilization • A measure of how well space is utilized • Should also consider accessibility • see product D in next slide • Racking allows accessibility to all goods while improving utilization

22. Product A Product A Product A Product A Product A Product B Product B Product C Product C Product C Product D Product E Cube Utilization - Example Utilization = 12 pallets / (5 x 3) spaces = 80%

23. Pallets pallets are stored 3 high SKU A 4 pallets SKU B 6 pallets SKU C 14 pallets SKU D 8 pallets SKU E 5 pallets 37 pallets Utilization = 37 ÷ (14 x 3) x 100% = 88% Pallet Positions 2 2 5 3 2 14 Pallet Positions - Example Problem

24. Stock Location • Location will depend on: • type of goods stored • storage facilities needed (i.e. refrigeration) • throughput (volume of items picked) • size of the orders • Management considerations • customer service • keeping track of the items • total effort required

25. Locating Stock - Basic Systems • Group functionally related items together • Group fast moving items together • Group physically similar items together • Locate working stock and reserve stock separately

26. Locating Stock - Functionally Related Items • Items that are similar in their use or characteristics • warehouse staff become familiar with the items • similar order processing needs • often ordered together • hardware items • bulk items • security?

27. Locating Stock - Fast Moving Items • Close to receiving or shipping • Reduces travel time • Slower moving items can be further away

28. Locating Stock - Physically Similar Items • May have similar storage requirements • refrigeration • shelving • Use similar handling equipment • drums vs small items • steel tubing vs cartons

29. Locating Stock - Working Stock & Reserve Stock • Pick orders from a single location • ‘home’ location • Allows more compact picking area • closer to marshalling area • reduces order picking travel time • Reserve stock is handled in bulk

30. Fixed Location • “A place for everything and everything in its place” • Reduces amount of record keeping • Usually results in poor cube utilization • space must be available for the replenishment order quantity • average of 50% utilization

31. Floating Location • Goods are stored wherever appropriate space is available • Requires good record keeping • Improves cube utilization • Often used for reserve stock • Used in automated systems

32. Point-of-Use Storage • JIT and repetitive manufacturing • materials are readily accesible to users • material handling is reduced • central storage costs are reduced • materials are accessible at all times • Floor stock • small ‘C’ items • inventory is adjusted when stock is replenished

33. Central Storage • All items are kept in one location • The opposite of point-of-use storage • ease of control • accurate inventory control is easier • makes use of specialized storage • reduces safety stock

34. Order Picking and Assembly • Once an order is received it must be: • retrieved • assembled • prepared for shipment • Involves: • labor • movement of goods • To provide the desired level of customer service

35. Area System • Used in small warehouses • The order picker moves through the warehouse and takes all the goods to shipping • self marshalling • order is complete when the picker is finished

36. Zone System • Warehouse is divided into zones • Order pickers work in their own area • deliver goods to the marshalling area • Zones are established by related items • type of storage • type of material handling required • Marshalling area then organizes orders for shipment

37. Multi-order System • Similar to zone system • Multiple orders are picked together • Marshalling area then sorts orders by shipment • Used where there are many items or many small orders

38. Working Stock and Reserve Stock • Used in all systems • area, zone, multi-order • Working stock located close to shipping • Replenishment is done by separate workforce • Improves order picking efficiency and customer service

39. Physical Control and Security • Need a system to make it difficult for people to make mistakes or forget to update inventory records • Need: • a good part numbering system • a simple well documented transaction system

40. Part Numbering • Each part has a unique number used only for that part • Descriptive part numbers • assist in order picking and service • difficult to keep current • Non-descriptive part numbers • easier to keep up-to-date

41. Transaction System 1. Identify the item • quantity, location, part number 2. Verify quantity • standard size containers if possible 3. Record the transaction • manual or computerized 4. Physically execute the transaction • move the goods

42. Physical Control and Security • Limited access • locked • to ensure transactions are completed • A well trained workforce • to ensure transactions are completed • familiar with handling the goods

43. Inventory Record Accuracy • Accurate on-hand balances are needed to: • avoid shortages • maintain schedules • avoid excess inventory • (of the wrong goods) • provide good customer service

44. Inventory Record Accuracy • Operate an effective materials management system • Maintain customer service • Operate effectively and efficiently • Analyse inventory • The system is only as good as the data used

45. Inaccurate Inventories • Result in: • Lost sales • Disrupted schedules • Excess inventory of the wrong things • Low porductivity • Poor delivery performance • Excess expediting

46. Causes of Inventory Errors • Unauthorized withdrawal of material • Unsecure stockroom • Poorly trained personnel • Inaccurate transaction recording • Poor transaction recording system • system should reduce the likelihood of human error • Lack of audit capability

47. Measuring Inventory Record Accuracy • Ideal is 100% • banks • ‘A’ items • A tolerance may be allowed for some items

48. Tolerance • “Allowable departure from nominal value ….” • APICS 12th Edition Dictionary • Between the inventory record and a physical count • Set on individual items • Value, critical nature of the item, availability, lead time, safety, ability to measure

49. Tolerance Figure 12.3 Inventory record accuracy

50. Tolerance Figure 12.4 Inventory accuracy with tolerances