1. Materials Management Systems
Physical Inventory & Warehouse Mgt.
Chapter 12
Thank you.
Purchasing in the year 2000: Only 1.5 years away.
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2. Objectives of Efficient Warehouse Operations
Ch. 12: Physical Inventory and Warehouse Management Warehousing Management
Objectives of Efficient Warehouse Operations
Provide timely customer service
Keep track of items so they can be found readily and correctly
Minimize the total physical effort and thus the cost of moving goods into and out of storage
Provide communication links with customers
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3. Benefits of Warehouse Management
Ch. 12: Physical Inventory and Warehouse Management Warehousing Management
Benefits of Warehouse Management
Provide a place to store and protect inventory
Reduce transportation costs
Improve customer service levels
The complexity of a warehouse operation will depend on the # of SKUs handled and the # of orders received and filled.
Most activity in a warehouse is material handling.
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4. Costs of Operating a Warehouse
Ch. 12: Physical Inventory and Warehouse Management Warehousing Management
Costs of Operating a Warehouse
Capital costs
costs of space and materials handling equipment
Operating costs
cost of labor
the measure of labor productivity is the number of units that an operator can move in a day
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5. Costs of Operating a Warehouse
Ch. 12: Physical Inventory and Warehouse Management Warehousing Management
Costs of Operating a Warehouse
The costs of operating a warehouse will depend on: material handling equipment used, stock location system used and the warehouse layout.
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6. Dispatch goods to storage Hold goods
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Receive goods
Identify the goods
Dispatch goods to storage
Hold goods
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7. Operate an information system
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Pick goods
Marshal shipment
Dispatch shipment
Operate an information system
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8. Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Receive goods
accepts goods from outside transportation or attached factory and accepts responsibility for them
check the goods against an order and the bill of lading
check the quantities
check for damage and fill out damage reports if necessary
inspect goods if required
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9. Dispatch goods to storage Hold goods
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Identify the goods
items are identified with the appropriate stock-keeping unit (SKU) number (part number) and the quantity received recorded
Dispatch goods to storage
goods are sorted and put away
Hold goods
goods are kept in storage and under proper protection until needed
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10. Pick goods Marshal the shipment Dispatch the shipment
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Pick goods
items required from stock must be selected from storage and brought to a marshalling area
Marshal the shipment
goods making up a single order are brought together and checked for omissions or errors; order records are updated
Dispatch the shipment
orders are packaged, shipping documents are prepared, and goods loaded on the vehicle
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11. Operate an information system
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Operate an information system
a record must be maintained for each item in stock showing the quantity on hand, quantity received, quantity issued, and location in the warehouse
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12. Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
To maximize productivity and minimize cost, warehouse management must work with the following:
Maximize use of space
space is the largest capital cost
Effective use of labor and equipment
labor is the largest operating cost
material handling equipment is the second largest capital cost
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13. Factors influencing effective use of warehouses
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Factors influencing effective use of warehouses
cube utilization and accessibility
stock location
order picking and assembly
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14. Cube utilization and accessibility
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Cube utilization and accessibility
Goods are stored not just on the floor, but in the cubic space of the warehouse; warehouse capacity depends on how high goods can be stored
Accessibility means being able to get at the goods wanted with a minimum amount of work
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15. Stock Location Objectives: Basic Stock Locating Systems
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Stock Location
Objectives:
To provide the required customer service
To keep track of where items are stored
To minimize effort to receive, put away, and retrieve items
Basic Stock Locating Systems
Group functionally related items together
Group fast-moving items together
Group physically similar items together
Locate working stock and reserve stock separately
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16. Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities (Stock Location)
Fixed Location
An SKU is assigned a permanent location, and no other items are stored there
Fixed-location systems usually have poor cube utilization
Usually used in small warehouses; throughput is small, and there are few SKUs
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17. Floating (Random) Location
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities (Stock Location)
Floating (Random) Location
Goods are stored wherever there is appropriate space
Advantage of this system is improved cube utilization
It requires accurate and up-to-date information
Warehouses using floating-location systems are usually computer-based
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18. Two other systems sometimes used are:
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities (Stock Location)
Two other systems sometimes used are:
Point-of-use storage
Inventory is stored close to where it will be needed
Mainly used in repetitive manufacturing and JIT systems
Central storage
Contains all inventory in one central location
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19. Advantages of Point-of-use Storage
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities (Stock Location)
Advantages of Point-of-use Storage
Materials are readily accessible to users
Material handling is reduced or eliminated
Central storage costs are reduced
Material is accessible all the time
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20. Advantages of Central Storage
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities (Stock Location)
Advantages of Central Storage
Ease of control
Inventory record accuracy is easier to maintain
Specialized storage can be used
Reduced safety stock, since users do not need to carry their own safety stock
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21. Order Picking and Assembly
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Order Picking and Assembly
When an order is received, items must be obtained from the warehouse, grouped, and prepared for shipment, systems used:
Area system
Zone system
Multiorder system
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22. Order Picking and Assembly
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Order Picking and Assembly
Area system
The order picker circulates throughout the warehouse selecting the items on an order. The order is complete and ready to ship when the order picker is finished
Zone system
The warehouse is divided into zones, and each picker works only in an assigned zone. The order is divided by zone, and the items from each zone are sent to the marshaling area.
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23. Order Picking and Assembly (continued)
Ch. 12: Physical Inventory and Warehouse Management Warehouse Activities
Order Picking and Assembly (continued)
Multiorder system
This system is the same as the zone system, except that each picker collects items for a number of orders at the same time.
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24. Physical Control and Security - Elements
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Physical Control and Security
Physical Control and Security - Elements
Good part numbering system
Simple, well-documented transaction system
Identify the item
Verify the quantity
Record the transaction
Physically execute the transaction
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25. Physical Control and Security - Elements
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Physical Control and Security
Physical Control and Security - Elements
Limited access
Inventory must be kept in a safe, secure (locked) place with limited general access.
Well-trained workforce
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26. Accurate inventory records enable firms to:
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Inventory Record Accuracy
Accurate inventory records enable firms to:
Operate an effective materials management system
Maintain satisfactory customer service
Operate effectively and efficiently
Analyze inventory
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27. Three pieces of information must be accurate:
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Inventory Record Accuracy
Three pieces of information must be accurate:
Part description (part number)
Quantity
Location
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28. Inaccurate inventory records will result in:
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Inventory Record Accuracy
Inventory is a tangible asset that is easy to lose track of unless properly controlled
Inaccurate inventory records will result in:
Lost sales
Shortages and disrupted schedules
Excess inventory (of the wrong things)
Ineffective MRP / MRPII / ERP
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29. Inaccurate inventory records will result in:
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Inventory Record Accuracy
Inaccurate inventory records will result in:
Low productivity
Poor delivery performance
Excessive expediting, since people will always be reacting to a bad situation rather than planning for the future
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30. Causes of Inventory Record Errors
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Inventory Record Accuracy
Causes of Inventory Record Errors
Unauthorized withdrawal of material
Unsecured stockroom
Poorly trained personnel
Inaccurate transaction recording
Poor transaction recording systems
Lack of audit capability
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31. Measuring Inventory Record Accuracy
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Inventory Record Accuracy
Measuring Inventory Record Accuracy
It is not practical to expect 100% accuracy.
Tolerance
To judge inventory accuracy, a tolerance level for each part must be specified
Tolerance is the amount of permissible variation between an inventory record and a physical count.
Tolerances are set on individual items based on value, critical nature, availability, lead time, ability to stop prod., safety problems, or the difficulty of measurement.
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32. Two basic methods of auditing inventory:
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Auditing Inventory Records
Two basic methods of auditing inventory:
Periodic (usually annual) counts of all items
Cyclic (usually daily) counts of specified items
Most important is to audit the system to find causes of record inaccuracy and eliminate them. Cycle counting does this; periodic audits tend not to.
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33. Factors in good preparation for a physical inventory are:
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Auditing Inventory Records
Factors in good preparation for a physical inventory are:
Housekeeping
Identification
Training
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34. A physical inventory consists of four steps:
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Auditing Inventory Records
A physical inventory consists of four steps:
Count items and record the count on a ticket left on them
Verify this count by recounting or by sampling
When the verification is finished, collect the tickets and list the items in each department
Reconcile the inventory records for differences between the physical count and inventory dollars
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35. Several problems with annual physical inventory:
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Auditing Inventory Records
Several problems with annual physical inventory:
Usually the factory/facility has to be shut down, thus losing production or business
Labor and paperwork are expensive
The job is often done hurriedly and poorly since there is much pressure to get it done
Many times, more errors are introduced into the records than are eliminated
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36. Ch. 12: Physical Inventory and Warehouse Management Warehousing: Auditing Inventory Records
Cycle Counting
A system of counting inventory continually throughout the year
Advantages of cycle counting:
Timely detection and correction of problems
Complete or partial reduction of lost production
Use of personnel trained and dedicated to cycle counting
Count frequency
The number of times an item is counted in a year
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37. Ch. 12: Physical Inventory and Warehouse Management Warehousing: Auditing Inventory Records
Count Frequency
The count frequency should increase as the value of the item and number of transactions (chance of error) increase. For example, you can base the frequency of count on annual dollar value usage
Methods used:
ABC Method
Zone Method
Location Audit System
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38. Cycle counts can be scheduled at regular intervals or special times
Ch. 12: Physical Inventory and Warehouse Management Warehousing: Auditing Inventory Records
Cycle counts can be scheduled at regular intervals or special times
When to Count
When an order is placed
When an order is received
When the inventory record reaches zero
When an error occurs
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39. Ch. 12: Physical Inventory and Warehouse Management Review Questions
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