Warehouse Performance and Revision (PDF)

BSc Logistics with Supply Chain Management TL2WIM - Warehousing and Inventory Management Revision Dr. Meilinda Maghfiroh Faculty of Transport & Logistics Revision What is Inventory? Inventory may be in the form of, Why Inventories? Overstocking: Amoun...

BSc Logistics with Supply Chain Management TL2WIM - Warehousing and Inventory Management Revision Dr. Meilinda Maghfiroh Faculty of Transport & Logistics Revision What is Inventory? Inventory may be in the form of, Why Inventories? Overstocking: Amount available exceeds demand Liquidation, Obsolescence, Holding Understocking: Demand exceeds amount available Lost margin Future sales Consistent understocking reduces the customer demand Matching supply and demand→ Inventory Management So how does a firm go about managing its inventory? Inventory Classification (ABC, COI, XYZ) Cycle counting Determining order quantity Economic Order Quantity (EOQ) Economic Production Quantity (EPQ) Quantity Discount Model ABC Inventory Method The ABC inventory classification method is a system for segmenting and organising warehouse products based on their importance, relevance to the company, economic value, benefits, rotation generated, etc. The aim of ABC classification is to prioritise the most important goods for a company in the warehouse, such as those products that most impact the company’s profits and those with the highest rotation, instead of treating all the references the same or organising them by their size, weight or quantity. Managing Inventory: Cycle Counting Cycle counting is a method of checks and balances by which companies confirm physical inventory counts match their inventory records. This method involves performing a regular count and recording the adjustment of specific products. The most efficient inventory management plans lead to minimal transaction error rates and extremely high stock record accuracy without taking away from staff's essential tasks. Economic Order Quantity - EOQ Annual Annual TC = carrying + ordering + Purchasing cost cost cost Q + R S + CR TC = hC 2 Q Total cost is simple function of the lot size Q. Note that we can drop the last term, it is not affected by the choice of Q. Cost Minimization Goal The Total-Cost Curve is U-Shaped Q R TC = hC + S + CR 2 Q Annual Cost Holding costs Ordering Costs Order Quantity (Q) Q (optimal order quantity) Economic Production Quantity Production done in batches or lots Capacity to produce a part exceeds the part’s usage or demand rate Assumptions of EPQ are similar to EOQ except orders are received incrementally during production This corresponds to producing for an order with finite production capacity Average inventory held p-R R (Q/p)(p-R) Q/p Time Q/R Average inventory held=(1/2)(Q/p)(p-R) Total cost=(1/2)(Q/p)(p-R)H+(R/Q)S 2𝑅𝑆 𝑝 𝑄= 𝐻 𝑝−𝑅 All unit quantity discount Cost/Unit Two versions $3 $2.96 Constant H $2.92 Proportional H 5,000 10,000 Order Quantity Finding Q with all units discount with constant holding cost Managing Uncertainty: Role of Safety Inventory in a Supply Chain Trade-off when planning safety inventory (+) (-) Increase product availability Increase holding cost Margin captured Possibility of inventory dries up (in case of product volatile) Due to high product variety and demand uncertainty, safety inventory become significant fraction in the inventory carried. However, as product life cycle is shorter, carrying to much inventory is not favorable Key point to success in any supply chain is to figure out ways to decrease level of safety inventory carried without hurting the level of product availability. Stock-out Costs and Backlogging Running out of inventory is typically costly. The costs associated with such an event are called stock-out costs. stock-out costs/shortage cost (b): Costs incurred when the demand of a given period can not be satisfied (partially or fully) from stocks, i.e. current inventory level is not sufficient to satisfy the demand – not necessarily all voluntarily Can be in two forms: Backordering Lost Sales (No backordering) In backordering case, the demand of the customer that could not be satisfied on time is satisfied later at the first opportunity What is Warehouse? A designated facility that stores products at and between point of origin and point of consumption. Part of firms’ logistics system where goods are stored to balance demand & supply uncertainty serve customers in much better way consolidate upstream flow and distribute downstream flow as per requirement do last mile value addition such as packaging, kitting, etc., and to reduce last mile distribution cost. Warehouse Goals A warehouse should be viewed as a temporary place to store inventory and as a buffer in supply chain Ensure the order is being fulfil according to the demand Roles of Warehouse Inventory holding point Consolidation center Cross-dock center Sortation center Fulfillment Center Assembly facility (assemble-to-order) Transshipment point to serve outlying regions Returned goods center Warehouse Function and Processes Put Away and Storage Reserve storage Reserve or back-up storage area Holds the bulk of warehouse inventory in identifiable locations. Put Away Moving goods for placement in storage Slotting Slotting is method to identify what product lines/categories are ideally placed within the warehouse The strategy for slotting is usually based on 80/20 pareto rule (product categorization-ABC analysis), which indicates that 80% of sales comes from 20% of SKUs-which should be optimally placed for picking Warehouse Function: Order Picking Retrieve goods for customer’s order in time and in correct quantity to meet the required service level Key warehouse operation both in terms of cost and service as It requires significant proportion of the warehouse staff and It is critical to achieving high levels of order accuracy. Order for full unit load (e.g. pallet) → Reserve storage area Order less than a unit load (#cases or items)→ Picking location Why warehouse design is important A good warehouse layout should improve the flow of your facility. Optimize warehouse space Using warehouse space effectively allows companies to reduce the time it takes to produce a product and get it out the door, gain visibility into what is and isn’t working in the warehouse, and organize inventory to streamline the process at every stage. Increase productivity The right warehouse layout design aims to optimize operations while reducing the chances of bottlenecks or errors. Warehouse Technologies Automated Picking Tools Automatic Guided Vehicles (AGVs) Automated Inventory Control Platforms Automated Storage and Retrieval Systems (AS/RS) Warehouse Management Systems Internet of Things (IoT) Warehouse management system (WMS) Software that helps companies manage and control daily warehouse operations, from the moment goods and materials enter a distribution or fulfillment center until the moment they leave. In addition to inventory management, a WMS offers tools for picking and packing processes, resource utilization, analytics, and more. Types of warehouse management systems standalone (on-premise and often a homegrown legacy system), cloud-based applications built into ERP or supply chain management platforms (either on-premise or hosted in the cloud) Do you know the difference between RFID and Bar code? Storage Range Reading speed Individual VS Multiple Accuracy Sustainability Warehouse Costing Overhead Space cost costs 1 Labor costs Overhead (variable) Warehouse costs 2 costs Labor costs Miscellaneous (fixed) Indirect labor costs costs Activity-based costing Activity-based costing is based on the respective consumption ABC Costing 1. The first step is to identify the different activities that takes place inside the business. This should include both production related and administration related ones. In this step, the various tasks are segregated as per the activity they perform. 2. The next step is to identify the various cost drivers. For each activity, the factors affecting the cost will be identified. For this, the management should also understand how much resource each activity is consuming, in the form of raw material, time, labor and machine hours, etc. 3. Next, each cost will be assigned to each activity. Assigning the direct cost is easy, but for indirect cost, the procedure is complex, because it has to be allocated based on the cost drivers. 4. The final step is to allocate the cost that relate to the particular product or service. This can be done only after the cost is allocated to all the concerned activities. Every product or service will involve usage of some or part of an activity that will have a type category of cost attached to it. Warehouse Management Performance Inventory Order management KPIs Inventory accuracy Picking accuracy Carrying cost of inventory Total order cycle time Inventory turnover Order lead time Backorder Rate Receiving KPIs Fulfillment accuracy rate Receiving efficiency On-time shipping rate Receiving cycle time Cost per Order Rate of returns Putaway KPIs Accuracy rate Safety KPIs Putaway cycle time Accidents per year Time since last accident Q&A