STORES FUNCTIONS 1.RECEIPT2.STORAGE3.RETRIEVAL4.ISSUE 5.RECORD KEEPING 6.HOUSE KEEPING 7.SURPLUS MANAGEMENT 8.VERIFICATION9.COORDINATION

TYPES OF STORES 1.CENTRALISED 1.CENTRALISED 2.DECENTRALISED 2.DECENTRALISED

IDENTIFICATION OF ITEMS (CODIFICATION) 1.ALPHABETICAL 1.ALPHABETICAL 2.ALPHA-NUMERICAL 2.ALPHA-NUMERICAL 3.NUMERICAL 3.NUMERICAL 4.COLOUR CODES 4.COLOUR CODES 5.BAR CODES 5.BAR CODES

STORAGE SYSTEMS 1.CLOSED STORE SYSTEM 1.CLOSED STORE SYSTEM 2.OPEN STORE SYSTEM 2.OPEN STORE SYSTEM

STORES RECORDS 1. BIN CARDS 1. BIN CARDS 2. STORES LEDGER 2. STORES LEDGER

STORES ACCOUNTING FIFO FIFO LIFO LIFO AVERAGE COST AVERAGE COST MARKET VALUE MARKET VALUE STANDARD COST SYSTEM STANDARD COST SYSTEM

STOCK VERIFICATION ANNUAL VERIFICATION ANNUAL VERIFICATION CONTINOUS STOCK VERIFICATION CONTINOUS STOCK VERIFICATION LOW POINT VERIFICATION LOW POINT VERIFICATION

STORES EQUIPMENTS BINS BINS TRAYS TRAYS DRUMS DRUMS BARRELS BARRELS SHELVES SHELVES RACKS RACKS PALLETS PALLETS

MATERIAL HANDLING EQUIPMENTS TROLLEYS TROLLEYS FORK-LIFT TRUCKS FORK-LIFT TRUCKS HOISTS HOISTS MONORAIL MONORAIL BELT CONVEYOR BELT CONVEYOR ROLLER CONVEYOR ROLLER CONVEYOR CRANES CRANES

STANDARDISATION STANDARDISATION HELPS IN STANDARDISATION HELPS IN 1.REDUCING INVENTORY 1.REDUCING INVENTORY 2.INTERCHANGEABILITY 2.INTERCHANGEABILITY

Economic-Order-Quantity Decision Model Example Relevant Total Costs (Dollars) 2,000 4,000 6,000 8,000 10,000 5, ,2001,800 2, EOQ Annual relevant carrying costs Annual relevant total costs Annual relevant ordering costs Order Quantity (Units)

Reorder Point Weeks Reorder Point This exhibit assumes that demand and purchase-order lead time are certain: Demand = 247 tape packages/week Purchase-order lead time = 2 weeks Lead Time 2 weeks Lead Time 2 weeks

When to Reorder with EOQ Ordering Reorder Point - When the quantity on hand of an item drops to this amount, the item is reordered Reorder Point - When the quantity on hand of an item drops to this amount, the item is reordered Safety Stock - Stock that is held in excess of expected demand due to variable demand rate and/or lead time. Safety Stock - Stock that is held in excess of expected demand due to variable demand rate and/or lead time. Service Level - Probability that demand will not exceed supply during lead time. Service Level - Probability that demand will not exceed supply during lead time.

Determinants of the Reorder Point The rate of demand The rate of demand The lead time The lead time Demand and/or lead time variability Demand and/or lead time variability Stockout risk (safety stock) Stockout risk (safety stock)

Safety Stock LT Time Expected demand during lead time Maximum probable demand during lead time ROP Quantity Safety stock Figure Safety stock reduces risk of stockout during lead time

Reorder Point ROP Risk of a stockout Service level Probability of no stockout Expected demand Safety stock 0z Quantity z-scale Figure The ROP based on a normal Distribution of lead time demand

Safety Stock Example Safety stock is inventory held at all times regardless of the quantity of inventory ordered using the EOQ model. Video’s expected demand is 247 packages per week. Management feels that a maximum demand of 350 packages per week may occur.

Safety Stock Example How much safety stock should be carried? 350 Maximum demand – 247 Expected demand = 103 Excess demand per week 103 packages × 2 weeks lead time = 206 packages of safety stock.

Just-In-Time Purchasing Just-in-time (JIT) purchasing is the purchase of goods or materials such that a delivery immediately precedes demand or use. Companies moving toward JIT purchasing argue that the cost of carrying inventories (parameter C in the EOQ model) has been dramatically underestimated in the past.

JIT Purchasing and EOQ Model Parameters The cost of placing a purchase order (parameter P in the EOQ model) is also being re-evaluated. Three factors are causing sizable reduction in the cost of placing a purchase order (P). 1. Companies increasingly are establishing long-run purchasing arrangements.

JIT Purchasing and EOQ Model Parameters 2. Companies are using electronic links, such as the Internet, to place purchase orders. 3. Companies are increasing the use of purchase order cards (similar to consumer credit cards like Visa and Master Card).

Just-In-Time Production Systems Just-in-time (JIT) production systems take a “demand pull” approach in which goods are only manufactured to satisfy customer orders.

Major Features of a JIT System 1. Organizing production in manufacturing cells 2. Hiring and retaining multi-skilled workers 3. Emphasizing total quality management 4. Reducing manufacturing lead time and setup time 5. Building strong supplier relationships