Chapter IV-inventory in logistic system *Seasonal Demands

Stock-other term for inventory *Customer service

3 Growth and Significance of Inventory Cost *Stable Employment

*Product line Proliferation *Goods for resale

*Inventory carrying cost 4 Inventory Carrying Cost

*inventory as percentage assets Capital Cost- Interest or opportunity cost focuses upon
what having capital tied up in inventory cost company.
Rationale for carrying inventory
Storage Space cost- include handling cost associated with
Logistic Channel-indicates a number of points in logistic moving products into and out inventory and storage cost
channel at which accountable amounts of inventory may such as rent heating and lighting.
be found.
Service Cost-includes insurance and taxes
Potential Inventory Locations
Inventory Risk Cost- reflects the very real possibility that
Supplier 1 Supplier 2 Supplier 3 Supplier 4 inventory peso value may decline for reason largely
beyond capital control
Warehouse
2 Expected Stock out Cost- the cost of not having product
Plant/Manufacturing available when a customer demands or needs it.

Safety stock- companies facing a stock out possibility will

Plant/Warehouse
allow for safety stock to protect against uncertainties in
Distribution Distribution Distribution demand or lead time necessary for supply.
Center 1 Center 2 Center 3 Stock out cost- for company dealing with raw materials
or supplies for product line a stock out may mean wholly
Retailer 1 Retailer 2 Retailer 3 Retailer 4
or partially shutting down operation.

7 Functional Types of Inventory

6 Physical supply inventory
Purchase economies-firms will buy raw materials in large
quantities because of available price discount.
(Discount versus storage cost)
Transportation Savings-firms make shipments in multiple
carloads or even trainloads at even lower rates per
hundredweights.
Safety Stocks- or buffer stock is use to prevent an
emergency production shutdown.
Speculative Purchase- hedging against future price
increase, strikes, changing political policies, delayed
deliveries rising or falling interest rates or currency
fluctuation in the world market.
Seasonal Supply-agricultural products such as wheat or
grains are good example of items available only at certain
times of the year.
Maintenance of supply sources- large manufacturing
firms very often use small vendors or suppliers who
manufacture subassemblies or semi finished goods for
large firm even when the firm can produce items itself.
6 Physical Distribution Inventories- second inventory type
consist principally of finished goods awaiting shipment to
customers.
Cycle Stock- the portion of a company’s inventory that
depleted through normal sale or use and replenished
through the routine ordering process. The amount of
product the firm regularly consumes during normal
business activity.
In-process Stock- work in process, goods in process or
semi finished goods. Because of the time necessary to
manufacture goods and goods in transit.
Safety Stock-which protects against uncertainties in
demand rate lead time length or both. Firms hold safety
stock in addition to cycle stock for the purpose of
protecting against such uncertainties and their
consequences.
Seasonal Stock – which firms accumulates and holds in
advance of the season during which the firm will need it.
Promotional Sock-held so that a firms logistic system
may respond quickly and effectively to a marketing
promotional or price deal that a firm intending to pull a
product through the distribution channel offers to the
customers.
Speculative stock- most commonly associated with
materials needed by companies involved in
manufacturing or assembly operations this inventory
protects against price increases or constrains availability

*Transportation Savings Dead Stock-has no value for business purposes, firms will
ship dead stock to the location where it demands existed.
*Production savings
4 EVALUATING THE EFFECTIVENESS OF CAOMPANY’S Ownership Decision
APPROACH TO INVENTORY MANAGEMENT

*Customers Satisfaction Public warehouse

*Backordering/expediting

*inventory turn-over Private

warehouse
*ratio to inventory to sales

CHAPTER V-warehousing decision

Through-put volume

Warehouse- storage of goods, includes a wide spectrum

of facilities and locations that provide warehousing Variable Cost

Creating Time Utility- warehousing increases the utility of Fixed Cost

goods by broadening their time availability to prospective
7 Firms characteristic affecting the ownership decision
customer.
Firms charac. Private Public
5 The role of the warehouse in logistic system
Throughput volume high low
1. Transportation consolidation- by moving the LTL
and LCL amounts relatively short distances to or Seasonal demand stable fluctuating
from a warehouse, warehousing can allow firm to
consolidate smaller shipment into large shipment Dense market area high low
with significant transportation savings
2. Product Mixing- companies frequently turn out a Special physical control yes no
product line that contains thousand of different
Customer service requirements high low
product, if we consider color, size, shape, and
other various variations. Security requirements high low
3. Cross-Docking – is an operation that facilitates
the product mixing function. Multiple use needs yes no
4. Service – service may also be a factor for physical
supply warehouse. 2 Rationale for public warehousing
5. Contingencies- warehouse function is protection
Limited capital investment-most significance reason for
against contingencies such as transportation
using public warehousing is financial; it requires no or
delays, vendors stock-out or strike.
limited capital investment
6 Basic warehousing decisions
Flexibility- a firm can rent space for thirty-day periods
*private vs public warehouse enabling the firm to react quickly to movements in
demand or changes in quality of transportation services.
*centralized vs decentralized warehousing
“2 Public Warehousing Services”
*warehouse size and location
Bonded warehousing- the user is usually interested in
*layout delaying the payment of taxes or tariffs, avoiding their
payment altogether.
*items stocked
Field Warehousing- firms request receipt for goods
*employee safety stored in public warehouse under public warehouse
manager’s supervision in a private warehouse.
2 Basic warehouse operations
“7 Public warehousing rates”
*Movement
Per time period- peso per square foot per time period
1. Receiving goods into the warehouse from the
transport network Value- a p.w has a certain legally defined liability for
2. Transferring goods into a particular location in stored goods.
the warehouse
3. Selecting particular combination of goods for Volume and regularity- while cost of using a public
customer orders of raw material production warehouse is generally variable the warehouse company
4. Loading goods for shipping to the customer or to itself will experience fixed cost.
the production line.
Fragility- warehouse rate must consider commodities
*Storage-is the holding of goods general susceptibility to damage because of the risk to
warehouse company.
Seasonal demand
Damage to other goods- in a public warehouse setting
incompatible stored goods always run the risk of
damaging each other
Weight Density- warehouse generally sets rates in terms
of space, usually square foot.
Services- public warehouse is a comprehensive and
sophisticated industry today, willing and able to offer
variety of services beyond the general storage function.
4 Factors affecting the number of warehouse
1. Need for customer service
2. Inadequate transportation
3. Favoring decentralized warehousing is small
quantity buyers
4. Favoring decentralized warehousing would be
instances when customers allow insufficient
times before being stock out.
CHAPTER VI-Material Handling and Packaging
Material handling- efficient short distance movement
that usually takes place within the confines of building
such as plant or warehouse and between building and
transportation agency
4 dimension of material handling
*Movement- the movement aspects of material handling
involves the conveyance of goods (raw materials, semi-
finished goods and finished goods)into and out storage
facility as well as within such facilities
* Time- the time dimension of material handling is
concerned with readying goods for production or for
customer filling
*Quantity- the quantity issue addresses the varying
usage and delivery rate of raw materials and finished
goods respectively
*Space- Material handling equipment consume space in
the warehouse and plant.
Objective of Material Handling
1. Increase effective capacity
2. Improve operating efficiency
3. Develop effective working condition
4. Reduce heavy labor
5. Improved logistic service
6. Reduce cost
Dock Equipment
Forklift-a very versatile piece of equipment that can
provide a very reasonable cost. Warehouse usually use
forklift in conjunction with pallets
Dock Bumpers- are molded rubber piece that protect the
building from impact of a docking trailer
Dock Levelers- level out the angle between the dock
and the trailer that providing a ramp that enables the
forklift to drive into the trailer safely.
Dock Seals- a cushioned frame around the dock door
opening that connects the trailers to the truck
Trailer restraint system- vehicle restraints prevents the
trailer from drifting away from the dock during loading
and unloading.
Pallets- provide a base to hold individual items together.
Other material handling equipment
Conveyors-this system decrease handling cost increase
productivity of workers and equipment
Cranes
Bridge cranes- are more common in physical
supply warehouses or where the companies have to
move.
Stacker Cranes- they can function in narrow isle
effective utilizing warehouse cube capacity.
Other picking and storage equipment
Picker-to-part- the order picker must travel to the pick
location within the aisle
Bin Shelving- the oldest and more basic storage system
available for storing small parts.
Modular Storage drawers-are cabinets and further
subdivided into compartments
Flow Racks-store items in cartons having uniform size
and shape
Order Picking Vehicle- order picking trucks and person
abroad storage and retrieval (s/r) vehicles increase order-
picking rates and maximize cubic space utilization
Part-to-picker- the pick location travels through an
automated machine to the picker.
Carousels- are shelves or bins link together through a
mechanical device that stores and rotates items in order
picking.
Mezzanines- doubled layer storage system that utilizes a
second level bin shelving modular storage cabinets above
first storage levels.
Types of material handling equipment-a design
perspective
Flexible Path- includes manual hand trucks all forklift
truck and other picking equipment. Its design advantage
is versatility and flexibility. More labor intensive
Continuous-flow-fixed path- includes draglines and
conveyors. These are usually very efficient and highly
automated. Investment is high
Intermittent-flow fixed path-includes cranes and
monorails. With the ability to stop unneeded equipment.
Equipment selection factors
*physical attributes of product and packaging
*characteristic of physical facility b. Disadvantage
i. Accessibility- not enough rail cars
*time requirements and trucks to meet demands and
needs
Role of packaging
ii. At least one other mode of
1. Identify product and provide information transport must be used
2. Improve efficiency in handling and distributing iii. Management has few efforts to
packages update equipment
3. Customer interface a. PIGGYBACK
4. Protect product SERVICES- a flat
car design to
Packaging Material carry pre-loaded
trucks
1. Softer material 3. Pipelines- are exclusively used for the shipment
2. Plastic of liquids and gases and so are of a little use for
3. Environment manufacturers
4. Recycling 4. Water Transportation- cheapest form of
transportation as large bulk of commodities can
Packaging Selection
be ship at one time
Physical Dimension- one factor that affects a package a. Two types of ocean vessels
physical dimension is product characteristic-things such i. Passengers lines-which primarily
as size, shapes, and weight transport people
ii. Freighters- or cargo vessels
Material- a products physical dimension will affect a which may include tankers and
company’s packaging material choice. refrigerated vessels.
a. Fishy back-
Unitizing or palletizing- is the process of accumulating service identical
and stacking cases or other containers to form a single to piggyback
larger unit. except that the
truck bodies are
CHAPTER VII-Transportation System
loaded into
Transportation- is actual transfer or movement of goods vessels instead of
from one place to another creating place and time utility. flat cars
b. Containerization
Modes of transportation - is use to large
standards sized
1. Land Transportation- our focus will be on truck vans for shipping
as buses and jeepneys are most often used to goods.
transfer people not freight 5. Air Transportation- is the fastest form of
a. Advantages of using trucks transportation thus highly used for perishable
i. Convenience- provide door to goods such as flowers and foods
door services
ii. Fast- moving goods by trucks is The transportation mix
faster that by inland waterways
iii. Flexible- in terms of physical or Speed- time required to moved goods to pick up point to
economic feasibility compare to the point of delivery
air and pipeline
Cost- the predominant carrier selection determinant in
iv. Can reach even the remote area
early carrier selection works.
v. Can travel over public highway
system Frequency- scheduled shipment per day
b. Disadvantages of using trucks
i. High cost loading and unloading Dependability- on meeting schedules and safety delivery
small less than truckload of the goods
shipment
ii. Less desirable for transporting Availability- For frequent use
bulk goods because of
Capability- ability to meet nature and kind of
comparatively small size
commodities to be shipped.
iii. Slow due to frequent rest stop
and traffic congestion
iv. Unprofitable return tips
2. Railroads-is a low cost transportation for
distances over 120 kilometers.
a. Advantages
i. Suitable for movement of bulk
goods