Inventory and Warehouse Management PDF

A. Types of inventories Type What isit? Why keepingit as inventory? Unprocessed -Reduce Cost: Buy in batch to take advantage of...

A. Types of inventories Type What isit? Why keepingit as inventory? Unprocessed -Reduce Cost: Buy in batch to take advantage of purchased inputs or transportation economies, quantity discounts, order cost, etc. Raw Inventory: materials for -Hedge risk: future material price, shortage in supply, late materials all materials manufacturing the delivery, quality problems, etc. and goods finished goods that are Materials that are purchased, Work-in- -Decouple processing stages partially processed but partially process (WIP) -Break the dependencies between work centers not yet ready for sales completed -Buffer against unexpected demand changes materials -Hedge against production process downtime and -Ensure production economies when the setup cost is very component Finished Completed products goods ready for shipment. high parts, and -Stabilize production rates, especially for seasonal products. the finished -Reduce Cost: Buy in batch to make take advantage of goods Maintenance, Materials and supplies transportation economies, quantity discounts, order cost, etc. produced. repair, and used when producing -Hedge risk: rising future material price, shortage in supply, operating the products but are late delivery, quality problems, etc. supplies not parts of the Nguyen PhucLinh (MRO) products.  B. Functions of inventories Buffer Decouple uncertainty in (break) the the marketplace dependencies → Safety between stages in the supply (buffer) stock chain. Geographically separatethe consumption of Store capacity the finished for later use goods from production Nguyen PhucLinh  C. Costs of inventories Costs not directly Costs directly related to related to the the production production Costs which are Indirect costs Direct costs independent of the output E.g: Holding (carrying) Fixed costs E.g: Fixed labor cost quantity costs (Warehouse and W/H management expenses, insurance) Variable E.g: utility cost E.g: Order (set up) costs, Cost change as costs Material cost the output quantity fluctuates Nguyen PhucLinh A. Definition ABC inventory control system is often combined with the 80/20 rule or Pareto analysis. Desired Classifications % Total AnnualDollar % of Total Inventory Levelof importance Usage Items A 80% 20% High B 15% 40% Medium C 5% 40% Low Total 100% 100% Note: - There can be more than 03 categories. - The desired percentage is just for a general guideline. - Classification criteria could be sales volume, current inventory, etc. - In short, be flexible Nguyen PhucLinh Example 1 Classification By Annual Dollar Usage Percent of Total Classification By Item Annual Usage Annual SKU Cost ($) (Units ) Usage ($) Annual Dollar Accumulation Annual Dollar Usage Usage A246 1 22,000 22,000 35.20% 35.20% A N376 0.5 40,000 20,000 32.00% 67.20% A C024 4.25 1,468 6,239 9.98% 77.18% A R221 12 410 4,920 7.87% 85.06% B P112 2.25 1,600 3,600 5.76% 90.82% B R116 0.12 25,000 3,000 4.80% 95.62% B T049 8.5 124 1,054 1.69% 97.30% C B615 0.25 3,500 875 1.40% 98.70% C L227 1.25 440 550 0.88% 99.58% C T519 26 10 260 0.42% 100.00% C $ Total Annual Dollar Usage: 62,498 100% Nguyen PhucLinh Example 2 Classification By Current Inventory Value Classification Percent of Current Current By Item Cost Inventory Inventory Total Current SKU Value ($) Accumulation Inventory ($) Current Value (Units ) Inventory A 40.54% 40.54% A T519 26 300 7,800 29.11% 69.65% A A246 1 5,600 5,600 7.80% 77.45% B L227 1.25 1,200 1,500 7.69% 85.14% B C024 4.25 348 1,479 4.99% 90.13% B R221 12 80 960 4.12% 94.25% C P112 2.25 352 792 2.21% 96.45% C T049 8.5 50 425 2.08% 98.53% C N376 0.5 800 400 1.31% 99.84% C R116 0.12 2,100 252 B615 0.25 120 30 0.16% 100.00% Total Annual Dollar Usage: $ 19,238 100% Nguyen PhucLinh Example 3 Right stocked or Understocked or Overstocked? Classification By Classification By Current Annual Dollar Inventory Right stocked or SKU Usage Value A not? A A C A246 A Right stocked B N376 B Un d er s to cked B C024 B Un d er s to cked B R221 B Right stocked C P112 C Right stocked C R116 C Un d er s to cked C T049 C Right stocked A B615 C Right stocked A L227 O ver s to cked T519 O ver s to cked Nguyen PhucLinh  B. The ABC Warehouse layout ClassificMovement in Location in a warehouse Company’s action ations the warehouse - Easy-to-access areas close to the dispatch area Very frequentin - Stocktake frequently A - Stored in storage systems with quick and and out direct access to the material handling - Have higher safety stock equipment (MHE) B Moderate Medium In-between - Stocktakeless frequently Lowest moving - Farthest from dispatch area and MHE C - Stockoutsis allowed to save items inventory space and carrying costs. Nguyen PhucLinh  B. The ABC Warehouse layout (cont.) Nguyen PhucLinh  A. FIFO –FEFO -LIFO FIFO / FEFO LIFO Definition - First in -First out/ First expired -First out - Last in –First out Suitable -Items with a specific expiration date, especially FMCG -Homogeneous products that don’t expire. E.g: Coal, wine and products -Products that can easily become obsolete such as fashion and Construction materials(bricks, sand, coal, stones,etc.). electronics Required WH -Loading and unloading aisles must be different -Same aisle for loadingand unloading Advantage -Reduce cost: product won’tstaying long in the WH reduce inventory -Accounting benefit:reduce taxes,fewer write-downs, etc. cost -Reduce warehouse hassles: With LIFO, the new batch of stock is -Reduce expired and obsolete inventory placed right on top of the old batch in the warehouse. The -Quality control: stock is rotated frequentlyCustomers are less likely technique requires less tracking and space for warehousing given to receive expired products. that stock rotation is not necessary. -Minimize inflation impact: As the cost of production is always on the rise, shipping out the older and less costly inventory can optimize the profit. Disadvantage -Warehouse space: requires huge storage space for loading and -Limitationin the types of products:only applies to certain product unloading frequently. categories that don’t lose value over time. -Product tracking: Need a WMS to keep track of products as they move in and out quickly. -Monitoringdifficulties: difficult to update the inventory constantly with thousands of SKUs in different locations, each with a particular expiration date. -Higher taxes: higher profits higher taxes. -Push-Back Racking -How does it work? | AR Racking Video -Live Pallet Racking (FIFO) -How does it work? | AR Racking https://www.youtube.com/watch?v=3lBkAkk6cDo https://www.youtube.com/watch?v=jyCrrbzic8w Nguyen PhucLinh  B. Material Handling Equipment (MHE) Diesel Forklift Very Reach Truck Narrow Aisle Truck Hand Pallet Electric Truck Forklift Nguyen PhucLinh