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 Brought to marshalling area
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 Total width required = 42 inches per pallet space
clearance
Total width required = 42 inches per pallet space

18. 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

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

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

24. 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

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 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

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 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

42. Physical Control and Security
Limited access
locked
to ensure transactions are completed
A well trained workforce
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 productivity
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. Figure 12.3 Inventory record accuracy
Tolerance
Figure Inventory record accuracy

50. Figure 12.4 Inventory accuracy with tolerances

51. Tolerance Example Problem
Outside
Tolerance

52. Auditing Inventory Records
Checking the accuracy of inventory records
Periodic Inventory
usually an annual count
Cycle Counting
daily counts of items

53. Auditing Inventory Records
To correct the on-hand balance
periodic inventory
To find the reasons for errors and eliminate them
cycle counting

54. 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

55. 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

56. 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

57. 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

58. 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

59. 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

60. 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

61. 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

62. Scheduling Cycle Counts
Figure 12.5

63. Scheduling Cycle Counts - Example Problem
24,000 96
12,000 48
10,000 40
46,000
250
184

64. 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

65. 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

66. 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

67. 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

68. 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

69. Homework Assignment
Problems 12.2, 12.4, 12.5, 12.7