Warehousing PPTs prepared by Prof. Akhil Chandra

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Unit 1: Warehouse organization, warehouse functioning - Warehouse organization -Requisitions and replenishment of materials -Receipt and inspection of materials -Issue of materials -Stocktaking -Discrepancies and their resolution -Control of tools, surplus and scrap materials -Storage and handling practices of materials Unit 2: Computerization of ware house activities, performance evaluation and ISO Standards - Computerization of warehouse activities -Performance evaluation of stores activities -ISO Standards and ware house activities Unit 3: Warehouse location and facilities planning , security and safety - Warehouse location, layout and facilities planning -Warehouse security, safety and maintenance Unit 4: Inventory classification, codification and standardization -Inventory classification and strategies -Codification -Standardization Unit 5: Inventory control techniques and valuation of inventory -Inventory control model -Inventory control techniques -Effective management of spare parts -Valuation of inventory Reference book—Warehousing Management & Inventory control - Saxena Logistics and supply chain mgt by D.K.AGGARWAL

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Warehousing organization and functioning Warehouses are the godowns for keeping and storing goods and providing other related services in order to keep for traders or manufacturers to preserve the goods in a scientific manner so as to maintain their original value , quality and usefulness. Goods- Raw materials, parts, components, in-processes, finished goods, maintenance ,repairing and operating supplies or any other items used or sold of a firm

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Discuss A warehouse is typically viewed as a place to store inventory. But strategic warehousing from the point of view of logistics system design has a following new meaning Warehousing is a switching facility rather than storage facility Warehousing provider is now logistical service provider from mere storage service provider

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Historically As forecasting and production scheduling techniques improved, the need for extensive inventory build up was reduced though seasonal production still required warehousing. However changing requirements of Retail environment more than offset any reduction in warehousing gained through manufacturing improvements. The retail store faced with the necessity of stocking an increasing variety of products was unable to order in sufficient quantity from a single supplier to enjoy the benefits of consolidated shipment. The cost of transporting small shipment made direct ordering prohibitive his resulted in a need to utilize warehouses to provide timely and economical inventory assortments to retailers. At the wholesale level of the channel of distribution, the warehousing became a support unit for retailing. While JIT concept is to reduce work-in process inventory, the concept of manufacturing must be supported by highly dependable delivery. I n a geographically vast nation, such logistical support is possible only through the use of strategically located warehouses. A basic stock of part can be staged at a central warehouse thereby reducing the need to maintain inventory at each assembly point. Using consolidated shipments, products are purchased and transported to the supply warehouse and then distributed to manufacturing plants as needed. When fully integrated , the warehousing is a vital extension of manufacturing.

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On the outbound side of manufacturing, warehouses created the possibility of direct customer shipment of mixed products. This was appealing to marketers because it enhanced following service capability. Direct mixed shipments have two advantages. Logistical cost is reduced because full product assortment can be delivered while also taking the full advantage of the benefit of consolidated transportation. Inventory of slow moving products can be reduced because they can be received in small quantities as part of consolidated shipments. During 60ties and 70ties emphasis was on providing new technology affecting almost every area of operations and created new and better techniques and procedures to perform storage and handling technologies. During the 1990’s the primary focus of warehousing is flexibility and effective use of IT. Flexibility is necessary to respond to expanding customer demands in terms of products and shipment profiles.

Benefits of warehousing:

Benefits of warehousing If adding a warehouse to a logistics system will reduce overall transportaion cost by a n amount greater than the fixed and variable cost of the warehouse , then the warehouse is economically justified. Four basic economic benefits are 1.consolidation2.Break bulk and cross dock 3.Processing and postponement 4. Stockpiling Consolidation- Shipment consolidation is an economic benefit of ware housing The benefits are lowest possible transportation rate and reduced congestion at a customer’s receiving dock. Consolidation warehouses Plant A B c A+B+C Customer

Break Bulk and Cross Dock Lower transport cost Less difficulty in tracking:

Break Bulk and Cross Dock Lower transport cost Less difficulty in tracking Economic Benefits of cross-docking Full trailer movement from manufacturer to wareho use And from warehouse to retailers Reduced handling cost at the cross dock facility Since product is not stored More effective use of dock facilities because all vehicles are fully loaded thus Maximizing loading dock utilization Plant A Break bulk warehouse Customer B C A

Distribution Assortment:

Distribution Assortment Company B or Plant B Distribution Center Customer B C A Company C or Plant C Company A or Plant A

In-transit mixing:

In-transit mixing Plant B Warehouse transit mixing point Customer w Customer X A+B+C+D Customer Y A+B+C A+B+C+D Plant C Plant A Product D Customer z A+B

In-transit mixing:

In-transit mixing Plant B Warehouse transit mixing point Customer w Customer X A+B+C+D Customer Y A+B+C A+B+C+D Plant C Plant A Product D Customer z A+B

Manufacturing support :

Manufacturing support Vendor B Manufacturing warehouse Assembly Plant A Vendor C Vendor A

Processing/postponement:

Processing/postponement Ware houses can also be used to postpone or delay production by performing processing light manufacturing activity. A warehousing with packaging or labeling capability allows postponement of final production until actual demand is known. Benefit is that risk is minimized because final packaging is not completed until an order for a specific label and package has been received. Second the required level of of total inventory can be reduced by using the basic product for a variety of labeling and packaging configuration. The combination of lower risk and inventory level often reduces total system cost even if the cost of packaging at the warehouse is more expensive than it would be at manufacturer’s facility.

Stockpiling:

Stockpiling The direct economic benefit of this warehousing service is secondary to the fact that seasonal storage is essential to select businesses for example lawn furniture and toys are produced year round and primarily sold during a very short marketing period. Stockpiling provides an inventory buffer which allows production efficiencies within the constraints imposed by material sources and the customer.

SERVICE BENEFITS:

SERVICE BENEFITS Service benefits gained through warehouses in a logistical system may or may not reduce cost. The supporting rationale is actually an improvement of time and place capability of overall logistical system. For e.g. placing a warehouse in a logistical system to service a specific market segment may increase cost but might also increase market share ,revenue and gross margin. There are five basic service benefits achieved through warehousing: Spot stock, Assortment, mixing , production support , market presence

Service benefits Contd:

Service benefits Contd Spot stocking- Used for limited and highly seasonal product line. Delivery time can be substantially reduced by advanced inventory commitment to strategic markets . Under this concept a selected amount of product line is placed or spot stocked in a warehouse to fill customer’s orders during a critical marketing period. Utilizing warehouse facility for spot stocking allows inventory to be placed in a variety of markets adjacent to key customers just prior to a maximum period of seasonal sales. Assortment- stocks product combinations in anticipation of customer’s orders. The assortments may represent multiple products from different manufacturers or special assortment as specified by customers. Mixing -warehousing mixing is similar to break bulk process except that several different manufacturer shipments may be involved. When plants are geographically separated, overall transportation charges and warehousing requirements can be reduced by in-transit mixing. Mixing renders service benefit as inventory is sorted to precise customer specifications. Production support- Production support warehousing provides a steady supply of components and materials to assembly plants. Safety stocks on items purchased from outside vendors are justified because of long lead times or significant variations in usage. Market presence- The market presence is based on perception that local warehouses can be more responsive to customer needs and offer quicker delivery than more distant warehouses . As such local warehouses will enhance market share and potentially increase profitability.

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Mitchell Beverage Company produces Cactus Juice, a popular alcoholic beverage. Recently the firm has experienced problems of product pilferage at the warehouse. In one month, 3,200 bottles of Cactus Juice, representing 0.4 present of the month’s volume, could not be located for shipping. Should the problem go unresolved, it is anticipated that it will continue at this rate. The forecasted annual sales volume for Cactus Juice is 9.6 million bottles. Each bottle sells for $4.50. Steve Davis, vice president of distribution, has asked you to look into the following security options to reduce the pilferage problem. Hire four security guards to patrol the warehouse floor all hours of the day, seven days a week. The firm would offer a wage of $14.50/hour to the guards as well as a benefits package expected to be worth $2,000 per employee per year. The presence of security guards should lower pilferage to 0.2 percent of volume. Only one guard would be on duty at any one time. Implement an electronic detection system based on bar code technology. This would require purchasing bar code equipment for the packaging facility and warehouse. Electronic scanning devices must also be purchased and placed at warehouse entrances. Alarms sound whenever a bar-coded item passes through a warehouse entrance without clearance. The electronic detection package, including bar code printers and readers, will cost @120,000. In addition, employee at the plant and warehouse will be trained to use the new equipment at a one-time cost of $8,000. Monthly maintenance of the system is expected to cost $800. Also, a bar code specialist must be hired. The specialist would earn a salary of $49,000 per year. Product pilferage is expected to be lowered to 0.1 present of volume with the electronic security system. The system has an estimated life of eight years. Accrue all costs evenly over the life of the equipment. Install security cameras in key locations throughout the warehouse. It has been determined the six cameras could adequately record warehouse operations. Each camera costs $1,200. The support devices and installation will cost @36,000. Four security guards would monitors for suspicious activity. One guard would be on duty at all times. The guards each earn $12/hour, in a forty-two-hour workweek, and receive a benefits package worth $1,000 per year. Pilferage under this system would be 0.05 percent of volume. The monitoring equipment is expected to have a life of twelve years. Accrue all fixed costs evenly over the life of the equipment. Should the firm implement any of the options above, or make no investment and allow the pilferage to continue at the rate of 0.4 percent of volume? Compare the costs and benefits of each option on an annual basis.

Store systems and Procedures Receipt, stocking and issue :

Store systems and Procedures Receipt, stocking and issue Receipt system---This involves receipt from outside suppliers and receipt from internal divisions. There are following three stages When a Purchase Order on supplier is placed , a copy is sent to stores with details of quantity and delivery time . This helps in advance planning in stores sp that stores manager is able to estimate the volume of receipt. This also helps in planning labor contracts. 2. Suppliers before dispatching the goods send an Advice Note which provides information like date of dispatch, career details, description of consignment and value. 3.Third stage is consignment note prepared by transport career like Railways and private transport organizations. The three documents viz P.O. , Supplier’s advice note and consignment note help the stores Manager to organize and plan for expeditious clearance of material and minimize costly demurrages.Reputed Suppliers also send dispatch notes

Activities involved during the day delivery:

Activities involved during the day delivery During the day of delivery, above documents help in identification of correct quantities and values. After identification, it is physically verifies using weighbridges, measuring devices , tapes etc. When volume receipts are high, arrangements are made for inscribing the Tar weight of trucks and wagons. When there is no significant difference in actual amount and the amount shown in these documents , consignment is sent for inspection During the shortages, documents are prepared detailing shortages date vise detailing the quantum of shortage and value for lodging insurance claims . The time element is very important because time-barred items will not qualify for claims. Next stage is inspection . Goods awaiting inspection obviously are not available for issue to production. A provisional Goods Inward Note(PGI) is prepared as soon as the materials are cleared from the receiving section .PGI gives information on materials code , quantity received, rate , date of receipt, carrier details.supplier details,location code and description of material code.Receiving section of the Stores endorses it and inspection takes place. Once the inspection is completed then the inspection deptt either endorses the PGI indicating quantities accepted or rejected or sends an inspection report to the stores. A final goods inward Note (FGI) is prepared . After issue of FGI only Payments to vendors can be released.FGI’s also help in preparing shortage reports and claim documents which are sent to suppliers.

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FINAL G.I. NOTE Material Part No.: Description: P.O. Reference: Carrier details Supplier details Inspection report Quantity received Damage/Shortage …………………… Quantity accepted Shortage claim ref………………….. Quantity rejected Sd/- Sd/- Sd/- Central Receiving Section Inspection Department Stores Department Date: Date: Date: Truck/Wagon R/R: Consignment Note Supplier code Supplier name Test result Conclusions Copies to: Accounts : Attention bills/Insurance and claims Indentor : For information Materials : For updating and expediting Management Dept. Stores : For stock records and reference

Discrepancy Report:

Discrepancy Report From xyz Company To carrier, consigner Consigner note Ref. Invoice No. Date Dear sir We have received …… packages against the above consignment note on……The consignment was externally in good condition . The consignment was opened on……and we found the following discrepancies. Description Qty invoiced qty received shortage Excess Pls arrange to make good the shortage /raise invoice for the excess. We have deducted the value from the invoice for the shortage. We have arranged to return the excess and shall adjust the invoice value. Yours faithfully Xyz Co. Ltd

Issue of materials:

Issue of materials Issue of material can be divided in two parts 1. Issues to consuming departments 2. Issues to outside suppliers for processing or conversion For both cases there are System requirements. Based on production programs and bill of materials Work Orders are printed, listing for each material , quantity to be issued against each component requiring that material. Practice of issue of work order helps in controlling consumption since work order gives details of materials to be issued and the corresponding quantity of components to be manufactured. Any quantity mentioned above what is mentioned represents excessive wastage and scrapping. Second aspect is delegation of authority. Each authority like stores assistant, stores officers are delegated sanctioning power of issue establishing responsibility in controlling consumption. Updating of records is of utmost importance as stores record is the starting point of inventory management. When issues are made to outside suppliers, controls are have to be made more formal and adequate enough to take care of payments and claims. Good stores system can greatly assist Store Manager in accurate stock status reports ,timely detection of discrepancies, prompt clearance of Goods inward notes to expedite bill payments, reduction in demurrage and losses in claims. A stores Manual is prepared indicating mandatory requirements of creating documents and procedures.

Storing Practices :

Storing Practices At the end of receipt and inspection stage stocking follows. Stocking involves routine activities like sorting out material coming at the end of inspection process and storing them in their locations.In big organizations areas are demarcated as under. 1. Area where the materials are to stocked for inspection 2. Areas where material coming out of inspection and accepted for use within the plant are to be stocked. 3. Area where material rejected are to be stocked. Stocking is very imporetant for easy location,proper identification and speedy issue to the consuming department. Another important aspect is to specially stock excisable items which are subject to inspection by govt authorities before issue to consuming departments.For this purpose bonded stores are used. Where easy identification of such items are enabled .

Slide 23:

Essen Beer Company has a brewery in Michigan’s upper peninsula and is setting up distribution at Jackson. Michigan, in the state’s lower peninsula. Essen packages its beverages in barrels and in twenty-four-can cases. Barrels must be maintained at temperatures below sixty degrees Fahrenheit until retail delivery. The company’s logistics department must determine whether to operate individual private warehouse for barrels and cases or to utilize a single warehouse with barrels placed in a carefully controlled environment separate from cases. Assume that cases are not to be stored or transported in refrigerated environments. Essen experiences a weekly demand of 300 barrels and 5,000 cases. The company has arranged truckload transportation with Stipe Trucking Service. Stipe operates refrigerated and nonrefrigerated trailers, as well as multicompartmented trailers trailers that are half refrigerated and half not. A refrigerated truckload can hold 72 barrels, while a nonrefrigerated truckload holds 400 cases. The multicompartmented trailer can hold 36 barrels and 200 cases. The costs for these services and other related expenses are detailed below: Truckload costs Refrigerated $550 Nonrefrigerated $400 Multicompartmented $500

Slide 24:

Warehouse expenses Individual warehouse For case storage only: Capital $1,250/week Labor $2,500/week For barrel storage: Capital $2,500/week Labor $1,600/week Single, consolidated warehouse Capital $3,500/week Labor $3,200/week Considering demand and all costs depicted above, does the single, consolidated warehouse or the two individual warehouse represent the least-total-cost alternative? Now assume that Stipe Trucking Service will provide only the multicompartmented trailers to serve the proposed consolidated warehouse. Which plan is the least-cost alternative in this scenario?

Slide 25:

Comfy Mattresses, Inc., is opening a new plant in Orlando, Florida. Ron Lane, distribution manager has been asked to find the lowest cost outbound logistics system. Given an annual sales volume of 24,000 mattresses, determine the costs associated with each option below: Build a private warehouse near the plant for $300,000. The variable cost, including warehouse maintenance and labor, is estimated at $5 per unit. Contract carrier transportation costs $12.50 per unit on average. No external transportation services are necessary for shipment of mattresses from the plant to the warehouse in this scenario. The fixed warehouse investment can be accrued evenly over ten years. Rent space in a public warehouse ten miles from the plant. The public wrehous4e requires no fixed investment but has variable costs of $8 per unit. Outbound contract carrier transportation would cost $ 12.50 per unit on average. The carrier also charges $5 per unit to deliver the mattresses to the warehouse from the plant. Contract the warehousing and transportation services to the Freeflow Logistics Company an integrated logistics firm with a warehouse location twenty-five miles from the plant. Freeflow requires a fixed investment of $150,000 and charges $20 per unit for all services originating at the plant. The fixed investment covers a ten-year agreement with Freeflow. Name a few advantages aside from cost that the low-cost alternative above may have over the other alternatives .

Stock Verification:

Stock Verification Stock verification is a process of physically counting , measuring or weighing the entire range of items in the stores and recording the results in a systematic manner. Purpose of stock verification 1. To reconcile the stock records and documents for their accuracy and usefulness 2. To identify areas which require more disciplined document control. 3. To minimize the pilferage and fraudulent practices 4. To back up balance sheet stock figures Stock verification is usually carried out by the material Audit department.

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Physical verification is carried out periodically or on continuous basis. Periodic verification – Here entire cross section is verified at the end of one period which is usually the accounting period. The various steps involved are--- 1. A detailed program is chalked out giving complete breakdown of the process store vise and item vise in consultation with material management and finance department. 2. Necessary stock verification cards and check sheets are prepared in adequate amount. 3. During the verification process all the transaction must be stopped ie no receipts or issuing activities. 4.All stock verification cards should be serially numbered for easy reference and control. 5. Separate provisions are made for for items which are damaged or deteriorated. 6. Selected areas and items must be allocated to each stocktaking person so that orderly completion of the job without duplication or omission is ensured. 7. It is mandatory to separately verify items which are under inspection , items sent out to suppliers for processing and stocks at various stock yards.

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Check sheets are prepared for each items and values are worked out for different classifications. The total of such values gives the value of the stock on hand as verified. This is then tallied against the book figures or stock records . Allowances regarding acceptance margins of tolerances for conversion , weighing and measuring as well as for evaporation must be clearly laid down. Top management’s sanction is then sought for writing off deficiencies or valuing surplus.

Check-Sheet:

Check-Sheet Store location…… Sl.No … Part No….. Date Part Desription Unit of Quantity Meters/KGS/LITRES RATE……………… Quantity on hand….. Value of stock on hand…… Audited By Checked By Remarks Damaged Deteriorated Others

Continuous verification:

Continuous verification Under this system, verification is done throughout the year. A-Items may be verified thrice a year, B Items twice a year and C Items once a year. It presupposes that a perpetual inventory record for each item is maintained showing all transactions. Process of Verification--- Items are verified say in the case of bearings by counting, by measuring in the case of lubricants and so on. However for large stock of items such as sand, scrap and ore fuel need to be verified . It is based only on estimates as the question of exact measurement is ruled out. Descrepancies are discussed with Stores so that any omission is rectified. Major discrepancies can come out which may be due to pilferage on a large scale,wrong posting of records and loose documents control.Such discrepancies must be carefully analyzed with immediate corrective measure. Surprise checks and verifications are made to detect fraudulent acts.Material audit plays the role watchdog of stores pointing out weak areas and remedying them.

Discrepancy Voucher:

Discrepancy Voucher Date of Verification: Sl. No. Part Number… Ref. No. PART Description Stock verification sheet Location Code: Quantity as per records Quantity on verification Discrepancy amount: Value: Surplus Deficient Prepared By Approved By

Obsolete , surplus and Scrap Control:

Obsolete , surplus and Scrap Control Obsolete items are those materials and equipments which are not damaged and which have economic worth but which are not useful for company’s operations because of changes in product line ,process ,material etc. Surplus materials are those materials and equipment which have no immediate use but have accumulated due to faulty planning, forecasting and purchasing Scrap is defined as process wastage such as turnings ,borings etc. but they have a market value as it can be recycled.

Reasons for Generation and accumulation of obsolete ,surplus and scrap items.:

Reasons for Generation and accumulation of obsolete ,surplus and scrap items. Change in product Design Rationalization -raw materials are rationalized sometimes so as to minimize variety and simplify procurement. Cannibalization- some machines are repaired by carrying out cannibalization of other machines. Faulty planning and forecasting Faulty Purchase practices Other causes- Many items are insurable for many years without any consumption. Faulty store keeping methods without adequate preservation lead to spoilage. Inferior material handling, improper codification and poor manufacturing methods also result in obsolete, surplus and scrap items. Poor maintenance of machine tools may result in excessive tool wear and greater process scrap

Identification and control:

Identification and control The combing process of combining the stock records and movement analysis has been foud very effective in locating such stocks in the total inventory. Stock issue cards should be combed and items which have not been consumed for a period of one year must be isolated. Movement analysis statement-Separate lists of imported spares and insurance items indicating their value in terms of money and time must be made indicating items which have not moved for 2 years,3 years ,5 years and above. Such combing and movement analysis must be done on continuous basis

Movement analysis statement:

Movement analysis statement Sl. No. Part Number A/B/C Stock on hands in number of days consumption Value of orders on hand Description --------------------------------------------------------------------------------------------------------------------------------------- EPA( Effective point Advice) Items with no issue for long time will appear on top of statement. This helps in cancelling the orders and tapering off the stock on hand Selective control based on ABC analysis ,accurate forecasting techniques and proper preservation minimizes accumulation of scrap/surplus/scrap items. Sometimes buyback clauses are introduced in P.O. so that suppliers take back items if not used for long time. Whenever changes in production program ,design and product lines are contemplated, material management staff should be informed. Many organizations have introduced formal documentation in introducing changes in design and product. This is called ‘ Effective Point Advice’ ( EPA ). Here the proposed changes ,details of new Material s and products required, details of material and products which will be invalid /obsolete when the change occurs and the approximate date when the change is expected to be introduced are detailed and circulated to concerned departments. EPA thereby helps in tapering off the stock of invalid items ,cancellation of orders for such items, placing orders for buying and /or manufacturing new items and related activities. EPA system helps in better coordination for profitable introduction of changes with minimum side effects such as the accumulation of obsolete items.

Disposal of Scrap:

Disposal of Scrap Disposal of scrap can bring handsome returns.It is profitable to dispose the scrap to the end user rater than to middlemen. Before disposal scrap should be sorted out according to metal, size etc. Like segregating scrap such as copper , tungston,aluminium can bing handsome returns. Two methods used are –1. Thro’ auction 2. Through tender Parties inspect the material and deposit earnest money deposit.Some organisations request automobile scrap having spare parts like filters and plugs to demolish them othervise they are found to be sold as original equipment in the main market. Employees are encouraged to suggest minimization methods of scrap, waste and reward schemes are introduced By the company

Handling practices of material and storage:

Handling practices of material and storage Nearly 40 per cent of cost of production is accounted in production cost. Material handling can be defined as the function dealing with the preparation, placing and positioning of materials to facilitate their movement or storage. The function includes every consideration of the product except the actual processing operation Nearly 50 per cent of production cycle time is spent on handling material. Scientific material handling can substantially reduce the cost as well as reduce production cycle time. Factors like plant layout , processes, nature of raw material and product influence the material handling system. Material handling operations encompass suppliers , stores, inspection ,manufacturing ,packaging , warehousing and transport to consumer.

Decisions effecting effectiveness of material handling system:

Decisions effecting effectiveness of material handling system Layout decisions are normally taken on technological consideration but it should be consulted with material handling departments which can lead to reduction in investment on handling equipment and reduction in the production cycle time. Many organizations use industrial engineering techniques like flow process charts. There are two kinds of layouts 1.Product layout2. Process layout In Product layout, material handling is kept to minimum because product layout is designed as per the sequence of operations leading to smooth flow of material. Machines are so located so as to minimize the handling between successive processes. However process layouts result in lower investment in capital equipment and better utilization. A good layout should be such that there is no congestion of materials in process inventory . Transportation lines and bottlenecks must be minimal.

Material handling equiments:

Material handling equiments Material handling equipments can be categorized in two classes. 1. Fixed path equipments 2. Variable path equipments. Conveyers, mono-rail devices, and pully drive equiments belong to his category Overhead cranes can move material in any manner within a restricted area by virtue of its design.Overhead cranes have have a very good range in terms of hauling tonnage and are used for handling bulky raw materials, stacking and at times palletising . Variable path equipments.- they have no restrixction on the direction of movment . Trucks,forklifts,mobile cranes and industrial tractors belong to this category.

Factors for selecting material handling equipment:

Factors for selecting material handling equipment The cost factors include investment cost,labor cost, anticipated service hours per year, utilization, unit load carrying ability, loading and unloading characteristics, operating costs and the size requirements Other factors are source of power, conditions where the equipment has to operate. Improvements are made through work study techniques resulting in improvement in ration of operating time to loading time through palletizing, avoiding duplicate movements etc..

Guidelines in design and cost reduction of material handling systems:

Guidelines in design and cost reduction of material handling systems Sequence the operations in a logical manner Systems should be safe to operateregular preventive maintenance system for such equipments. Criteria of versatility and adaptibility should be considered in selection Weight of unit load must be maximum so that handling trip is productive Work-study aspects eliminating unnecessary movements must be considered. Non productive operations in handling should be kept minimum. Magnetic cranes for scrap movement and loading in furnaces ,combinations of excavator and tippers for ore loading and unloading mines. Location of stores should be as close as possible to the plant Application of OR techniques such as queuing can be very effective in optimal utilization of material handling equipment. Training of workmen is important.

Evaluation of material handling:

Evaluation of material handling Effectiveness of MHS can be measured in terms of time spent in the handling to the total time spent in production. The cost effectiveness can be measured by the expenses incurred per unit weight handled. Equipment utilization ratio is an important indicator for judging MHS. In order to know total efforts needed to move the material The handling ratio(MHL) is used which is personnel assigned to material handling/total operating work force In order to ascertain whether handling system delivers material to work centers with maximum efficiency, direct labor handling loss ratio (DLHL)is computed which is Material handling time lost by direct labor/total direct labor time

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In conclusion it can be said that an effective MHS depends on tailoring the layout and equipments to suit specific requirements. When a large volume has to be moved from a limited number of sources to a limited number of destinations then fixed path equipment like rollers , belt conveyers , overhead conveyers and gantry cranes are preferred. For increased flexibility varied path equipments are preferred

Unit 3: Warehouse location and facilities planning , security and safety -Warehouse location, layout and facilities planning -Warehouse security, safety and maintenance:

Unit 3: Warehouse location and facilities planning , security and safety - Warehouse location, layout and facilities planning -Warehouse security, safety and maintenance Warehouse location-Location analysis techniques are used for selecting a general area for warehouse location. The primary location analysis requires – Market Definition-Demand is assigned to a geographical area . The demand for each customer is assigned to one of the market area. Extensive govt and transportation data are available by ZIP codes.

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Once location analysis is completed, a specific building site must be selected. Three areas in a community may be considered for location. Commercial zones Outlying areas served by motor truck only Central downtown areas A master plan of the layout , space requirements and material handling design must be developed

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Product definition- Individual items especially those with similar distribution characteristics ,production sites and channel arrangements are grouped to simplify the analysis. Network definition-This specifies the channel members, institutions, and possible locations to be included in the analysis. Specific issues concerning the combination of suppliers, production locations , distribution centers, wholesalers and retailers are to be included.

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Market Demand- Market demand in terms shipment volumes to each geographic area is identified as market . It can also be based on historical shipments or anticipated volume. Transportation Rates-inbound and outbound transportation rates are a major data requirements for location analysis. Variable and Fixed costs- Variable costs include labor costs, energy, utilities and materials. Fixed costs include expenses related to facilities, equipment and supervisory management. Location peculiarities in wage rates, energy cost, land values and taxes should be covered to minimize analysis accuracy. Evaluations are done monthly or annually because dynamics of alternative distribution channel options , changing logistics cost structure and availability of third party cost structures are ever changing.

Warehouse location patterns:

Warehouse location patterns Edgar Hoover developed a classification for warehouse locations as Market positioned- this is devoted to providing inventory replenishment to customers operated by retailers ,manufacturers, and wholesalers largely found in food and mass merchandise industries and are justified based on the basis of service capability. They serve as locations to assemble products from different origins and different suppliers. A warehouse geographically positioned near key customer locations affords maximum long-haul inbound transportation from manufacturing points with relatively short secondary movement to customers. Manufacturing positioned- This is typically located close to production plants to serve as an assembly and consolidation point for items being produced.Items are transferred from specialized plants where they are produced , to the warehouse from which full line assortments can be shipped to customers. Such warehouses allow mixed product shipments to customers at consolidated transportation rates. Examples are Johnson & Johnson, General foods and Nabisco foods. Intermediately positioned . When products from two or more plants are sold to a single customer, an intermediate consolidation and assortment warehouse may be the least cost logistics solution.

Cost based warehouse justification:

Cost based warehouse justification Basis economic principle justifying a warehouse location is transportation consolidation. A manufacturer typically sells products over a broad geographical market area . If customer order tends to be small, then the potential to consolidate may provide economic justification for establishing a warehouse. Warehouse enters a logistical system only when a differential advantage in service or cost results from their inclusion between manufacturing and customers . From the view of transportation economics, cost advantage is accomplished by using the warehouse to achieve maximum consolidation of freight.

Transportation cost minimization:

Transportation cost minimization As long as combined cost of warehousing and local delivery is equal to or less than the combined cost of shipping direct to customers, the establishment and operation of additional warehousing facilities would be economically justified. SIGMA Pv + Tv / Nx + Wx + Lx less than or equal to SIGMA Px + Tx Where Pv = Processing cost of volume shipment Tv = Transportation cost of volume shipment Wx =Warehouse cost of average shipment Nx =Number of average shipments per volume shipment Px =Processing cost of average shipment Tx =Direct freigt cost of average shipment

Warehouse Operating Principles:

51 Warehouse Operating Principles Once it has been determined to use a warehouse, the next step is designing it. Whether the warehouse is a small manual operation or a large automated facility, the following three principles are relevant: Design criteria, Handling technology, and Storage plan.

Design Criteria:

52 Design Criteria Warehouse design criteria address physical facility characteristics and product movement. Three factors to be considered in the design process are : the number of stories in the facility, height utilization, and product flow.

Number of stories in the facility:

53 N umber of stories in the facility The ideal warehouse design is limited to a single story so that product does not have to be moved up and down. The use of elevators to move product from one floor to the next requires time and energy. The elevator is also often a bottleneck in product flow since many material handlers are usual l y competing for a limited number of elevators. While it is not always possible, particularly in central business districts where land is restricted or expensive, warehouses should be limited to a single story.

Height utilization:

54 H eight utilization Regardless of facility size, the design should maximize the usage of the available cubic space by allowing for the greatest use of height on each floor. Most warehouses have 20- to 30-foot ceilings (1 foot = 12 inch; 1 inch = 2.54 cm), although modern automated and high-rise facilities can effectively use ceiling heights up to 100 feet. Through the use of racking or other hardware, it should be possible to store products up to the building's ceiling. Maximum effective warehouse height is limited by the safe lifting capabilities of material-handling equipment, such as forklifts.

Product flow:

55 Product flow Warehouse design should also allow for straight product flow through the facility . In general, this means that product should be received at one end of the building, stored in the middle, and then shipped from the other end. Straight-line product flow minimizes congestion and confusion.

Handling technology:

56 Handling technology The second principle focuses on the effectiveness and efficiency of material-handling technology. The elements of this principle concern : movement continuity and movement scale economies.

Movement continuity:

57 Movement continuity Movement continuity means that it is better for a material handler or piece of handling equipment to make a longer move than to have a number of handlers make numerous, individual, short segments of the same move. Exchanging the product between handlers or moving it from one piece of equipment to another wastes time and increases the potential for damage. Thus, as a general rule , fewer longer movements in the warehouse are preferred.

Movement scale economies:

58 Movement scale economies Movement scale economies imply that all warehouse activities should handle or move the largest quantities possible. Instead of moving individual cases, warehouse activities should be designed to move groups of cases such as pallets or containers. This grouping or batching might mean that multiple products or orders must be moved or selected at the same time. While this might increase the complexity of an individual's activities since multiple products or orders must be considered, the principle reduces the number of activities and the resulting cost.

Storage Plan:

59 Storage Plan According to the third principle, a warehouse design should consider product characteristics, particularly those pertaining to volume, weight, and storage. Product volume is the major concern when defining a warehouse storage plan. High-volume sales or throughput product should be stored in a location that minimizes the distance it is moved, such as near primary aisles and in low storage racks. Such a location minimizes travel distance and the need for extended lifting. Conversely, low-volume product can be assigned locations that are distant from primary aisles or higher up in storage racks.

A Sample Storage Area:

60 A Sample Storage Area

Storage Plan…:

61 Storage Plan … Similarly, the plan should include a specific strategy for products dependent on weight and storage characteristics. Relatively heavy items should be assigned to locations low to the ground to minimize the effort and risk of heavy lifting. Bulky or low-density products require extensive storage volume, so open floor space or high-level racks can be used for them. On the other hand, smaller items may require storage shelves or drawers. The integrated storage plan must consider and address the specific characteristics of each product.

Alternative Warehouse Strategies:

62 Alternative Warehouse Strategies Warehouse alternatives include: (1) Private warehouses, (2) Public warehouses, and (3) Contract warehouses. A private warehouse facility is owned and managed by the same enterprise that owns the merchandise handled and stored at the facility. A public warehouse , in contrast, is operated as an independent business offering a range of services -such as storage, handling, and transportation- on the basis of a fixed or variable fee . Public warehouse operators generally offer relatively standardized services to all clients.

Alternative Warehouse Strategies...:

63 Alternative Warehouse Strategies ... Contract warehousing , which is evolving from the public warehouse segment, provides benefits of both the private and public alternatives. Contract warehousing is a long term, mutually beneficial arrangement which provides unique and specially tailored warehousing and logistics services exclusively to one client, where the vendor and client share the risks associated with the operation. Important dimensions that differentiate contract warehousing operators from public warehouse operators are the extended time frame of the service relationship, tailored services, exclusivity, and shared risk.

Private Warehouses:

64 Private Warehouses A private warehouse is operated by the firm owning the product. The actual facility, however, may be owned or leased. The decision as to which strategy best fits an individual firm is essentially financial. Often it is not possible to find a warehouse for lease that fits the exact requirements of a firm.

Private Warehouses…:

65 Private Warehouses … The major benefits of private warehousing include control, flexibility, cost, and other intangible benefits. Private warehouses provide more control since the enterprise has absolute decision-making authority over all activities and priorities in the facility. This control facilitates the ability to integrate warehouse operations with the rest of the firm's internal logistics process.

Private Warehouses…:

66 Private Warehouses … Private warehousing is usually considered less costly than public warehousing because private facility costs do not have a profit markup. This perceived benefit, however, may be misleading since public warehouses often are more efficient or may operate at lower wage scales. Private warehousing has also some intangible benefits, particularly with respect to market presence. A private warehouse with a firm's name on it may produce customer perceptions of responsiveness and stability. This perception sometimes provides a firm with a marketing advantage over other enterprises.

Public Warehouses:

67 Public Warehouses On the basis of the range of specialized operations performed, public warehouses are classified as (1) general merchandise, (2) refrigerated, (3) special commodity, (4) bonded, and (5) household goods and furniture. Each warehouse type differs in its material handling and storage technology as a result of the product and environmental characteristics.

Public Warehouses…:

68 Public Warehouses … General merchandise warehouses are designed to handIe general package commodities such as paper, small appliances, and household supplies. Refrigerated warehouses (either frozen or chilled) handle and maintain food, medical items, and chemical products with special temperature requirements. Commodity warehouses are designed to handle bulk material or items with special handling considerations, such as tires or clothing.

Public Warehouses…:

69 Public Warehouses … Bonded warehouses are licensed by the government to store goods prior to payment of taxes or duties. They exert very tight control over all movements in and out of the facility since government documents must be filed with each move. For example, cigarettes are often stored in bonded warehouses prior to having the tax stamp applied. This tactic saves the firm money by delaying tax payments; it also reduces inventory value substantially.

Public Warehouses…:

70 Public Warehouses … Finally, a household goods or furniture warehouse is designed to handle and store large, bulky items such as appliances and furniture. Of course, many public warehouses offer combinations of these operations.

Public Warehouses…:

71 Public Warehouses … From a financial perspective, public warehousing may have a lower variable cost than comparable privately operated facilities. The lower variable cost may be the result of lower pay scales, better productivity, or economy of scale. Public warehouses certainly result in lower capital costs. When management performance is judged according to return on investment (ROI), the use of public warehousing can substantially increase enterprise return.

Public Warehouses…:

72 Public Warehouses … Public warehousing offers flexibility in that it is easy to change the location, size, and number of facilities, allowing a firm to quickly respond to supplier, customer, and seasonal demands. Private warehouses are relatively fixed and difficult to change because buildings have to be constructed or sold. Public warehousing can also offer significant scale economies since the volume for each customer is leveraged with that of other users. This results in high-volume operations that can spread fixed costs and justify more efficient handling equipment.

Public Warehouses…:

73 Public Warehouses … A public warehouse can also leverage transportation by providing delivery of loads that represent many public warehouse customers. For example, rather than have vendor A and vendor B each deliver to a retail store from their own warehouse, a public warehouse serving both vendors could deliver a single combined load more efficiently.

Public Warehouses…:

74 Public Warehouses … A public warehouse charges clients a basic fee for handling and storage. In the case of handling , the charge is based on the number of cases or pounds handled. For storage , the charge is assessed on the number of cases or weight in storage during the month. Such charges normally exceed the cost of private warehousing if adequate private facility volume exists. However, when economies of scale are not possible in a private facility, public warehousing may be a low-cost alternative.

Contract Warehouses:

75 Contract Warehouses Contract warehousing combines the best characteristics of both private and public operations. The long-term relationship and shared risk result in lower cost than typical public warehouse arrangements. Contract warehouse operations can provide benefits of expertise, flexibility, and economies of scale by sharing management, labor, equipment, and information resources across a number of clients.

Contract Warehouses…:

76 Contract Warehouses … Although it is common for contract warehouse operators to share resources across clients in the same industry such as grocery products, it is not common that direct competitors will want to share resources. Contract warehouse operators are also expanding the scope of their services to include other logistics activities such as transportation, inventory control, order processing, customer service, and returns processing.

Contract Warehouses…:

77 Contract Warehouses … For example, Rich Products, a frozen food manufacturer in Buffalo, New York, has increasingly utilized contract warehousing. Since 1992, Rich has had a long term commitment with a refrigerated warehousing and distribution company, Christian Salvesen, for storage, handling, and distribution services at its facilities in New York. The nature of the arrangement benefits both parties and allows Rich to expand its distribution network without incurring any fixed facility cost.

Contract Warehouses…:

78 Contract Warehouses … Rich is assured that there will a l ways be storage space for its products. Christian Salvesen doesn't have to be concerned with filling space in its warehouses and can focus on providing service. Moreover, the longer Rich Products utilizes Christian Salvesen's services, the better the contract warehousing firm will be able to understand Rich's business needs and provide customized services.

Warehousing Strategy:

79 Warehousing Strategy M any firms utilize a combination of private, public, and contract facilities. A private or contract facility may be used to cover basic year round requirements, while public facilities are used to handle peak seasons. In other situations, central warehouses may be private, while market area or field warehouses are public facilities. Each use of warehouse combinations will be discussed now.

Warehousing Strategy…:

80 Warehousing Strategy … Full warehouse utilization throughout a year is a remote possibility. As a planning rule, a warehouse designed for full-capacity utilization will in fact be fully utilized between 75 and 85 percent of the time. Thus from 15 to 25 percent of the time, the space needed to meet peak requirements is not utilized. In such situations, it may be more efficient to build private facilities to cover the 75 percent requirement and use public facilities to accommodate peak demand.

Warehousing Strategy…:

81 Warehousing Strategy … I t may be more efficient to build private facilities to cover the 75 percent requirement and use public facilities to accommodate peak demand.

Warehousing Strategy…:

82 Warehousing Strategy … The second form of combined public warehousing may result from market requirements. A firm may find that private warehousing is justified at specific locations on the basis of distribution volume. In other markets, public facilities may be the least-cost option. In logistical system design the objective is to determine whatever combination of warehouse strategies most economically meets customer service objectives.

Warehousing Strategy…:

83 Warehousing Strategy … An integrated warehouse strategy focuses on two questions. The first concerns how many warehouses should be employed. The second question concerns which warehouse types should be used to meet market requirements. For many firms, the answer is a combination that can be differentiated by customer and product. Specifically, some customer groups may be served best from a private warehouse, while a public warehouse may be appropriate for others.

Warehousing Strategy…:

84 Warehousing Strategy … Other qualitative factors that should be considered include: (1) presence synergies, (2) industry synergies, (3) operating flexibility, (4) location flexibility, and (5) scale economies. Each consideration and its rationale will be discussed.

Presence synergies:

85 Presence synergies Presence synergies refer to the marketing benefits of having inventory located nearby in a building that is clearly affiliated with the enterprise (e.g., the building has the firm's name on the door). It is widely thought that customers are more comfortable when suppliers maintain inventory in nearby locations. Products and customers that benefit from local presence should be served from private or contract facilities.

Industry synergies:

86 Industry synergies Industry synergies refer to the operating benefits of collocating with other firms serving the same industry. For example, firms in the grocery business often receive substantial benefits when they share public warehouse facilities with other suppliers serving the same industry. Reduced transportation cost is the major benefit since joint use of the same public warehouse allows frequent delivery of consolidated loads from multiple suppliers. Public and contract warehousing increase the potential for industry synergy.

Operating flexibility:

87 Operating flexibility Operating flexibility refers to the ability to adjust internal policies and procedures to meet product and customer needs. Since private warehouses operate under the complete control of the enterprise, they are usually perceived to demonstrate more operating flexibility. On the other hand, a public warehouse often employs policies and procedures that are consistent across its clients to minimize operating confusion. T here are many public and contract warehouse operations that have demonstrated substantial flexibility and responsiveness.

Location flexibility:

88 Location flexibility Location flexibility refers to the ability to quickly adjust warehouse location and number in accordance with seasonal or permanent demand changes. For example, in-season demand for agricultural chemicals requires that warehouses be located near markets that allow customer pickup. Outside the growing season, however, these local warehouses are unnecessary. Thus, the desirable strategy is to be able to open and close local facilities seasonally. Public and contract warehouses offer the location flexibility to accomplish such requirements.

Scale economies :

89 Scale economies Scale economies refer to the ability to reduce material-handling and storage through application of advanced technologies. High-volume warehouses generally have greater opportunity to achieve these benefits because they can spread technology's fixed cost over larger volumes. In addition, capital investment in automated equipment can reduce direct variable cost. Public and contract warehouses are generally perceived to offer better scale economies since they are able to design operations and facilities to meet higher volumes of multiple clients.

Qualitative Decision Factors:

90 Qualitative Decision Factors Presence synergy and Operating flexibility is higher in Private Warehouses. Other factors are higher in Public Warehouses.

Planning the Distribution Warehouse:

91 Planning the Distribution Warehouse The initial decisions of warehousing are related to planning. A master plan of the layout, space requirements, and material-handling design should be developed first and a specific site for the warehouse selected. These decisions establish the character of the warehouse, which, in turn determines the degree of attainable handling efficiency.

Site Selection:

92 Site Selection Location analysis techniques are available to assist in selecting a general area for warehouse location. Once location analysis is completed, a specific building site must be selected. Three areas in a community may be considered for location: 1) commercial zones, 2) outlying areas served by motor truck only, and 3) central or downtown areas. The primary factors in site selection are the availability of services and cost. The cost of procurement is the most important factor governing site selection.

Site Selection…:

93 Site Selection … A warehouse need not be located in a major industrial area. In many cities, one observes warehouses among industrial plants and in areas zoned for light or heavy industry. Interestingly, this is not a legal necessity because most warehouses can operate under the restrictions placed on commercial property.

Site Selection…:

94 Site Selection … Beyond procurement cost, setup and operating expenses such as rail sidings, utility expenses, taxes, insurance rates, and highway access require evaluation. These expenses vary between sites. For example, a food distribution firm recently rejected what otherwise appeared to be a totally satisfactory site because of insurance rates. The site was located near the end of a water main.

Site Selection…:

95 Site Selection … During most of the day, adequate water supplies were available to handle operational and emergency requirements. The only possible water problem occurred during two short periods each day. From 6:30 to 8:30 in the morning and from 5 to 7 in the evening, the demand for water along the line was so great that a sufficient supply was not available to handle emergencies. Because of this deficiency, abnormally high insurance rates were required and the site was rejected.

Site Selection…:

96 Site Selection … Several other requirements must be satisfied before a site is purchased. The location must offer adequate room for expansion. Necessary utilities must be available. The soil must be capable of supporting the structure, and the site must be sufficiently high to afford proper drainage (su akışına izin verme).

Product-Mix Considerations:

97 Product-Mix Considerations The design and operation of a warehouse are related directly to the character of the product mix. Each product should be analyzed in terms of annual sales, stability of demand, weight, and packaging. It is also desirable to determine the total size and weight of the average order processed through the warehouse. These data provide necessary information for determining requirements in warehouse space, design and layout, material-handling equipment operating procedures, and controls.

Expansion:

98 Expansion Future expansion is often neglected when an enterprise consider initial establishment of its warehouse facilities. Inclusion of a warehouse into the logistical system should be based partially on estimated requirements for future operations. Well-managed organizations often establish five- to ten-year expansion plans. Such expansion considerations may require purchase or option of a site three to five times the size of the initial structure.

Expansion…:

99 Expansion … Special construction is often considered to ease expansion without seriously affecting normal operations. Some walls may be constructed of semi-permanent materials to allow easy removal. Floor areas, designed to support heavy movements, are extended to these walls in a manner that facilitates expansion.

Selection of Material-Handling System:

100 Selection of Material-Handling System A material-handling system is one of the initial considerations of warehouse planning. Movement is the main function within a warehouse. Consequently, the warehouse is viewed as a structure designed to facilitate maximum product flow. It is important to stress that the material-handling system should be selected early in the warehouse design stage.

Warehouse Layout:

101 Warehouse Layout Layout of a warehouse depends on the proposed material handling system and requires development of a floor plan to facilitate product flow. It is difficult to generalize about warehouse layouts since they must be refined to fit specific needs. If pallets are to be utilized, the first step is to determine the pallet size. A pallet of nonstandard size may be desirable for specialized products, but whenever possible, standardized pallets should be used because of their lower cost.

Warehouse Layout…:

102 Warehouse Layout … The most common sizes are 40 by 48 inches and 32 by 40 inches. In general, the larger the pallet load, the lower the cost of movement per package over a given distance. The packages to be placed on the pallet and the related patterns will determine, to a certain extent, the size of pallet best suited to the operation. Regardless of the size finally selected, management should adopt one size for the total operation.

Warehouse Layout…:

103 Warehouse Layout … The second step in planning a layout involves the pallet positioning. The basic method of positioning pallets in a mechanized warehouse is a ninety-degree, or square, placement. Square placement means that the pallet is positioned perpendicular to the aisle. The square method is widely used because of layout ease.

Security systems;Pilferage Protection:

104 Security systems;Pilferage Protection Protection against theft of merchandise has become a major factor in warehouse operations. Such protection is required as a result of the increased vulnerability of firms to riots and civil disturbances. All normal precautions employed throughout the enterprise should be strictly enforced at each warehouse. Security begins at the fence. As standard procedure, only authorized personnel should be permitted into the facility and surrounding grounds and entry to the warehouse yard should be controlled through a single gate.

Pilferage Protection…:

105 Pilferage Protection … Without exception, no private automobile-regardless of management rank or customer status-should be allowed to penetrate the yard adjacent to the warehouse. To illustrate the importance of the stated guidelines, the following actual experience may be helpful. A particular firm enforced the rule that no private vehicles should be permitted in the warehouse yard. Exceptions were made for two handicapped office employees.

Pilferage Protection…:

106 Pilferage Protection … One night af ter work, one of these employees accidentally discovered a bundle taped under one fender of his car. Subsequent checking revealed that the car was literally a delivery truck. The matter was promptly reported to security, which informed the employee not to alter any packages taped to the car and to continue parking inside the yard. Over the next several days, the situation was fully uncovered, with the ultimate arrest and conviction of several warehouse employees who confessed to stealing over $100,000 of company merchandise.

Pilferage Protection…:

107 Pilferage Protection … The firm would have been better off purchasing a small vehicle to provide transportation for the handicapped employees from the regular parking lots to the office. Shortages are always a major consideration in warehouse operations. Many are honest mistakes in order selection and shipment, but the purpose of security is to restrict theft from all angles. The majority of thefts occur during normal working hours.

Pilferage Protection…:

108 Pilferage Protection … Computerized inventory control and order processing systems help protect merchandise from being carried out of the warehouse doors. No items should be released from the warehouse unless accompanied by a computer release document. If samples are authorized for use by salespersons, the merchandise should be separate from other inventory.

Pilferage Protection…:

109 Pilferage Protection … Not all pilferage occurs on an individual basis. Numerous instances have been discovered where organized efforts between warehouse personnel and truck drivers resulted in deliberate over-picking or high-for-low-value product substitution in order to move unauthorized merchandise out of the warehouse. Employee rotation, total case counts, and occasional complete line-item checks can reduce vulnerability to such collaboration.

Product Deterioration:

110 Product Deterioration Within the warehouse, a number of factors can reduce a product or material to a non-usable or non-marketable state. The most obvious form of product deterioration is damage from careless transfer or storage. Another major form of deterioration is non-compatibility of products stored in the same facility.

Product Deterioration…:

111 Product Deterioration … The primary concern is deterioration that results from improper warehouse work procedures. A constant concern is the carelessness of warehouse employees. In this respect, the forklift truck may well be management's worst enemy. Regardless of how often operators are warned against carrying overloads, some still attempt such shortcuts when not properly supervised.

Product Deterioration…:

112 Product Deterioration … In one situation, a stack of four pallets was dropped off a forklift truck at the receiving dock of a food warehouse. Standard procedure was to move two pallets per load. The value of the damaged merchandise exceeded the average daily profit of two supermarkets. Product deterioration from careless handling within the warehouse is a form of loss that cannot be insured against and constitutes a 100 percent cost with no compensating revenue.

Safety and Maintenance:

Safety and Maintenance Accident prevention is a paramount concern within the warehouse. A well balanced program should include constant examination of work procedures and equipment to locate and correct unsafe conditions before they result in accidents. Accidents can occur when Workers become careless or are exposed to mechanical or physical hazards. Floors of warehouse may cause accidents if not cleaned properly. During normal operations rubber and carbon deposits collect along aisles and from time to time broken cases will cause product seepage on the floor. Proper cleaning procedures are a regular part f work environment safety. A preventive maintenance of program is necessary for material handling equipment. This helps in periodic check of all handling equipment.

Unit 4: Inventory classification, codification and standardization -Inventory classification and strategies -Codification-Standardization :

Unit 4: Inventory classification, codification and standardization -Inventory classification and strategies -Codification-Standardization Fewer supplier /vendors Smaller lot sizes Shorter replenishment cycle times Reduced set up time by prevention of duplication of works TQM Service to customer by real time response to customers Improve service quality by preventing stock-out situations Inventory to sales ratio must fall

Classification of inventories:

Classification of inventories Nature of material Production Inventories MRO INVENTORIES(MAINTENANCE,REPAIR AND OPERATING SUPPLIES) In process inventories Finished goods inventories Use of material Transaction inventory-transaction of finished saleable products or raw materials Speculative inventory-to get more price Precautionary inventory-to meet unexpected demands(seasonal)

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Inventory based on functional requirements Working stock-also known as cycle or lot size stock Safety stock-to prevent uncertainty of demand Anticipation stock-seasonal like holding woolen garments for winter Pipe line stock-transit stock or work in process inventory , gods in transit from manufacturer to be delivered to customer Decoupling stock-inventory accumulated between manufacturers , whole-sellers and retailers Psychic stock-to stimulate impulse buying thro’ window display inventory

ABC ANALYSIS:

ABC ANALYSIS Basis of ABC Analysis is to control the various inventory items on the basis of priority based on monthly/annual consumption value. Items are categorized in three broad groups A,B,C based on their monthly/annual consumption value. A Category- Mostly monthly/annual consumption valued items are classified as A category. Generally 20 per cent items account for approx. 65/70 per cent of the total sales or consumption value. Stock- out of these items can result production halt or loss of a customer. B CATEGORY- Generally 30 per cent items account for 25 per cent of total sales or consumption value. These items may need a lesser degree of attention and control than those of A C Category- Low monthly/annual consumption valued items are grouped in C. May need least attention for inventory management

ABC-VED MATRIX:

ABC-VED MATRIX VED Analysis emphasizes on classification of items based on criticality of use. VED Analysis CATEGORY Consequence when stock-out Degree of inventory M gt V(Vital) Brings production to a halt Significant E(Essential) Dislocation of prodn schedule special Loss of sale D(DESIRABLE) Temporary additional cost due considerable to arrangement of substitute

ABC –VED Strategies:

ABC –VED Strategies Consumption value of item criticality of item V(significant) E(essential) D(Considerable) A (Best) A ,V A,E A,D B (better) B,V B,E B,D C (Good) C,V C,E C,D

Elements of inventory costs Procurement cost Inventory carrying cost stock-out cost:

Elements of inventory costs Procurement cost Inventory carrying cost stock-out cost Procurement cost or ordering costs Cost of order processing from indenting stage to accounts and finally to purchase, Cost of transmission of an order from purchase deptt . To the supplier Cost of transportation-Including freight , octroi , transit insurance , protective packaging etc Receiving cost-cost involved in administrative work on receiving the order which includes preparing goods receipt note , update inventory records and make necessary checks against the respective P.O.

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Inventory carrying cost -includes Space rent for storage of goods Cost of working capital locked in the inventory Cost of insurance of goods Cost of spoilage in quality of goods in storage , breakage in handling Cost of deterioration due to weather and passage of time Cost of obsolescence of goods or depreciation

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Stock-out cost-is economic consequence of internal or external shortage External is from customer’s end when customer order is not filled whereas internal shortages occur occurs when an order of the internal department is not filled causing loss of production.

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MRP, planning begins with the principle that many materials held in an inventory have dependent demands like parts of an item ordered. MRP is a computer based inventory control system that determines how much of each material , any inventory item with a unique part number should be purchased or produced in each time period to support the master production schedule. MRP is designed to Release production and purchase orders to regulate the flow of raw materials ,in process inventories necessary to meet the production schedules for finished goods. Ensure availability of materials , components and products for planned production and customer delivery Maintain minimum levels of dependent demand items

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Objectives of MRP Improve customer service –it ensures not only timely delivery of goods As per delivery commitments but brings replenishment cycle time down by proper implementation of info. System. Reduce inventory costs--- MRP brings better control of quality, quantity and timings of delivery of raw materials, components , subassembly to production operation resulting into lowering down of inventory costs. Enhancing operational efficiencies--- it enhances efficiency by reduced number of stock outs and delivery delays resulting in more production Reduction in substandard products due to use of quality ensured inputs Efficient movement of goods leads to decreased idle time and confusion.

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Elements of MRP 1. Master production schedule is devised to either replenish finished goods inventory or to fill customer orders. It is a schedule of the number and timing of all end items to be produced in a manufacturing plant over a specified planning horizon. MRP explodes the master schedule in the material requirements. MRP uses Inventory status file as what we have and bill of material files as what we require and then MRP decides what we need providing data to purchase department what to order and to manufacturing to decide on what one needs. Steps in MRP computer program– 1. First with MRS it begins to determine the number of end items needed in each time period . Time periods are called buckets in MRP language. 2. Next number of service parts not included in the MPS but deduced from customer orders are included as end items. 3. Next MPS and service parts are exploded into gross requirements for all materials by the time period into the future by consulting bill of material file. 4.Next the gross material requirements are modified by the amount of materials on hand and on order for each period by consulting the inventory status file The net requirements of each material for each bucket are computes as Net requirements= Gross requirements- ( inventory on hand - safety stock – inventory allocated to other users) Finally orders are offset to earlier time periods in order to allow for lead times at each step in the production process and supplier lead times.

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This results in inventory transactions data (orders released, changes in orders, etc) which are used to update the inventory status file, the primary output reports and secondary output reports.( Refer diagram, page 172) There are two primary outputs. 1. Planned order schedule-A plan of the quantity of each material to be ordered in each time period . This schedule is used by purchasing to place orders with suppliers and by production to order parts , sub-assemblies. The planned order becomes a guide for future production at the suppliers and for in-house production schedule. 2. Changes in planned orders-modification of previous planned orders, quantities of orders can be changed. orders can be cancelled or the orders can be delayed or advanced.

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The secondary MRP outputs provide the information like 1.Exception reports – Reports flag items requiring management attention in order to provide the right quantity of materials each time period. Exceptions are reporting errors, late orders, and excessive scraps. 2.Performance reports - reports that indicate how well the system is operating . Examples of performance measures are inventory turns, percentage delivery promises kept and stock out incidences. 3. planning reports- reports to be used in future inventory planning activities. Examples are inventory forecasts, purchase committee reports , traces to demand sources and long range material requirement planning. MRP SYSTEM TAKES MASTER SCHEDULE FOR THE PRODUCTION OF END ITEMS AND CALCULATES THE REQUIREMENTS OF DEPENDENT ITEMS FOR PRODUCTION OF THOSE END ITEMS. CERTAIN MATERIALS ARE PROCURED FROM THE SUPPLIERS AND OTHERS ARE PRODUCED IN-HOUSE. MRP combines production explosion ,lot sizing, timing of purchase and other operations into one coordinated procedure so as to calculate material requirements on real time basis. Thus MRP is a valuable tool for Inventory control Scheduling for setting of priorities Determining MPS capacity flexibility

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DRP(Distribution Resource Planning) DRP is a more sophisticated planning approach that considers multiple distribution stages and the characteristics of each stage. DRP is the logical extension of manufacturing requirements planning (MRP), although there is one fundamental difference between the two techniques. MRP is determined by a production schedule that is defined and controlled by the enterprise. On the other hand, DRP is guided by customer demand, which is not controllable by the enterprise. So, while MRP generally operates in a dependent demand situation, DRP operates in an independent environment where uncertain customer demand determines inventory requirements. The manufacturing requirements planning component coordinates the scheduling and integration of materials into finished goods. MRP controls inventory until manufacturing or assembly is completed. DRP then takes coordination responsibility one finished goods are received in the plant warehouse .

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Figure (page177) illustrates the conceptual design of a combined DRP/ MRP system that integrates finished goods, work-in-process, and materials planning. DRP coordinate inventory levels, plans inventory movement, and (if necessary) reschedules inventory between levels. The fundamental DRP planning tool is the schedule, which coordinates requirements across the planning horizon. There is a schedule for each SKU and each distribution facility. Schedules for the same SKU are integrated to determine the overall requirements for replenishment facilities such as a plant warehouse.

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DRP Benefits and Constraints – An integrated inventory planning system such as DRP offers a number of benefits for management. Major organizational beneficiaries include marketing and logistics. The major marketing benefits are: Improved service levels that increase on-time deliveries and decrease customer complaints Improved and more effective promotional and new-product introduction plans Improved ability to anticipate shortages so that marketing efforts are not expended on products with low stock Improved inventory coordination with other enterprise functions, since DRP facilitates a common set of planning numbers Enhanced ability to offer customers a coordinated inventory management service

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The major logistics benefits are: Reduced distribution center freight costs resulting from coordinated shipments Reduced inventory levels, since DRP can accurately determine what product is needed and when Decreased warehouse space requirements because of inventory reductions Reduced customer freight cost as a result of fewer back-orders Improved inventory visibility and coordination between logistics and manufacturing Enhanced budgeting capability, since DRP can effectively simulate inventory and transpiration requirement under multiple planning scenarios

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Figure ( Aggarwal’s book,page,177) illustrates DRP schedules for three distribution centers and a central supply facility. The schedules are developed using weekly time increments known as buckets. Each bucket projects one period of activity. Although weekly increments are the most common, daily or monthly periods are used as well. For each site and SKU, the schedule reports current on-hand balance, safety stock, performance-cycle length, and order quantity. In addition, for each planning period, the schedule reports gross requirements, scheduled receipts, and projected on-hand inventory and planned orders. Gross requirements reflect demands from customers and other distribution facilities supplied by the site under review. Scheduled receipts are the replenishment shipments planned for arrival at the distribution center. Projected on-hand inventory refers to the anticipated week-ending level. It is equal to the prior week’s on-hand inventory less the current week’s gross requirements plus any scheduled receipts.