Physical Inventory and Warehouse Management Chapter 12
Warehouses Store inventory for a period of time storage protection Inventory may be turned over rapidly distribution center customer service
Stores Perform the same function as a warehouse for a factory raw materials finished goods supplies repair parts
Warehouse Activities Receive goods Identify goods Dispatch goods to storage Hold goods Pick goods Marshal the shipment Dispatch the shipment Operate an information system
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
Identify the goods With appropriate stock keeping unit (SKU) number With part number Indicate the quantity
Dispatch Goods to Storage Goods are sorted Put away goods record the location
Hold Goods Storage is meant to protect the goods cold heated explosive
Pick Goods Goods are picked from storage Brought to marshalling area must be accessible location records Brought to marshalling area
Marshal the Shipment All goods for an order are brought together check for missing items check for correct items change order information if required
Dispatch the Shipment The order is prepared for shipment and loaded on the right vehicle protective packaging for shipment documents prepared loaded and secured
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
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
Warehouse Effectiveness Cube utilization and accessibility Stock location Order picking and assembly Packaging (discussed in Chapter 13)
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
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
Pallet Spacing Total width required = 42 inches per pallet space clearance Total width required = 42 inches per pallet space
6 x 42” ÷ 12 = 21 feet required to store 16 pallets Pallet Spacing 6 x 42” ÷ 12 = 21 feet required to store 16 pallets stacked 3 high
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
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
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
Cube Utilization - Example Product A B C D E Utilization = 12 pallets / (5 x 3) spaces = 80%
Pallet Positions - Example Problem 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 5 3 14
Stock Location Location will depend on: Management considerations 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
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
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?
Locating Stock - Fast Moving Items Close to receiving or shipping Reduces travel time Slower moving items can be further away
Locating Stock - Physically Similar Items May have similar storage requirements refrigeration shelving Use similar handling equipment drums vs small items steel tubing vs cartons
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
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
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
Point-of-Use Storage JIT and repetitive manufacturing Floor stock 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
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
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
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
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
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
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
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
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
Transaction System 1. Identify the item 2. Verify quantity 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
Physical Control and Security Limited access locked to ensure transactions are completed A well trained workforce familiar with handling the goods
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
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
Inaccurate Inventories Result in: Lost sales Disrupted schedules Excess inventory of the wrong things Low productivity Poor delivery performance Excess expediting
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
Measuring Inventory Record Accuracy Ideal is 100% banks ‘A’ items A tolerance may be allowed for some items
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
Figure 12.3 Inventory record accuracy Tolerance Figure 12.3 Inventory record accuracy
Figure 12.4 Inventory accuracy with tolerances
Tolerance Example Problem Outside Tolerance
Auditing Inventory Records Checking the accuracy of inventory records Periodic Inventory usually an annual count Cycle Counting daily counts of items
Auditing Inventory Records To correct the on-hand balance periodic inventory To find the reasons for errors and eliminate them cycle counting
Periodic (Annual) Inventory To satisfy financial auditors Determine the value of the inventory Financial auditors are concerned with the total value Planners are concerned with the item detail
Taking the Physical Inventory Taking a physical inventory is like painting; the results depend on good preparation George Plossl Housekeeping sort items, pre-count and seal Identification identify and tag items use personnel familiar with the items Training in procedures
Physical Inventory - Process 1. Count the items and record the count on tickets left with the item 2. Verify the count, sampling may be used 3. Collect the tickets and list all items 4. Reconcile the inventory update financial records correct inventory balances Investigate reasons for discrepancies
Physical Inventory - Problems Production may be shut down Labor and paperwork effort Pressure to get the inventory completed People doing the inventory may not be familiar with the items Errors may be introduced
Cycle Counting Count inventory continually throughout the year Predetermined schedule some items counted frequently depending on value past history of problems Count some items every day
Cycle Counting- Advantages Timely correction of errors Reduction of lost production Use of trained personnel familiar with the items fewer errors able to identify problems
Count Frequency The number of times each item is counted per year Increases by: the value or critical nature of the item the number of transactions per year chances of error a past history of problems with the item
Count Frequency - Methods ABC method Management establishes a rule for how many times an item should be counted per year. e.g. ‘A’ items once per month, ‘B’ items quartery, ‘C’ items twice per year A mix of all items is counted every day. computerized systems can identify daily lists of items to count
Scheduling Cycle Counts Figure 12.5
Scheduling Cycle Counts - Example Problem 24,000 96 12,000 48 10,000 40 46,000 250 184
Count Frequency Methods - Continued Zone Method used with: fixed location system work-in-process counts in-transit inventory counts Location Audit verifies location of goods
Cycle Counting - When to Count Counts items when errors are likely to have occurred when an order is placed detects errors when stock is low when an order is received stock is at its lowest when inventory reaches zero when an error occurs inventory shows negative or there is no stock when there should be
Technology Applications Bar Codes paper labels which show a product code RF Tags Radio Frequency do not need to ‘see’ the item Reduce recording errors Improve transaction speed
Bar Codes Industry Standards Product Code Only Automotive Grocery – UPC Blood Services Product Code Only Refers to a database Read Distances and accuracy are improving
RFID (Radio Frequency Identification) Can be inside the product Used in dirty or extreme environments Railroad Multi Modal Usually sends back a product code Refer back to a database Costs are coming down Used throughout the supply chain Walmart
Homework Assignment Problems 12.2, 12.4, 12.5, 12.7