Warehousing Management

Objectives of Efficient Warehouse Operations

Provide timely customer service
Keep track of items so they can be found readily &
correctly
Minimize the total physical effort & thus the cost
of moving goods into & out of storage

Provide communication links w/ customers

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Warehousing Management

Benefits of Warehouse Management

Provide a place to store & protect inventory
Reduce transportation costs
Improve customer service levels

Complexity of warehouse operation depends on the

# of SKUs handled & the # of orders received &
filled
Most activity in a warehouse is material handling

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Warehousing Management
Costs of Operating a Warehouse
Capital costs
costs of space & materials handling equipment

Operating costs
cost of labor
measure of labor productivity is the number of
units that an operator can move in a day

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Warehouse Activities

Receive goods
Identify the goods
Dispatch goods to storage
Hold goods
Pick goods
Marshal shipment
Dispatch shipment
Operate an information system

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Warehouse Activities
Receive goods
accepts goods from outside transportation or
attached factory & accepts responsibility
check the goods against an order & the bill of lading
check the quantities
check for damage & fill out damage reports if
necessary
inspect goods if required

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Warehouse Activities

Identify the goods

Dispatch goods to storage

goods are sorted & put away

Hold goods

items are identified with the appropriate stock-keeping unit (SKU)

number (part number) & the quantity received recorded

goods are kept in storage & under proper protection until needed

Pick goods

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items required from stock must be selected from storage & brought to
a marshalling area

Warehouse Activities

Marshal the shipment

Dispatch the shipment

goods making up a single order are brought together &

checked for omissions or errors; order records are updated

orders are packaged, shipping documents are prepared, &

goods loaded on the vehicle

Operate an information system

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a record must be maintained for each item in stock showing

the quantity on hand, quantity received, quantity issued, &
location in the warehouse

Warehouse Activities

Maximize productivity & minimize cost,

warehouse management must work w/the
following:
Maximize use of space
space is the largest capital cost

Effective use of labor & equipment

labor is the largest operating cost
material handling equipment is the second largest capital
cost

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Warehouse Activities
Factors influencing effective use of
warehouses
cube utilization and accessibility
stock location
order picking and assembly

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Warehouse Activities
Cube utilization and accessibility
Goods stored not just on the floor, but in the
cubic space of the warehouse; warehouse
capacity depends on how high goods can be
stored
Accessibility means being able to get at the
goods wanted w/ a minimum amount of work

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Warehouse Activities

Stock Location
Objectives:
To provide the required customer service
To keep track of where items are stored
To minimize effort to receive, put away, and retrieve items

Basic Stock Locating Systems

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Group functionally related items together

Group fast-moving items together
Group physically similar items together
Locate working stock and reserve stock separately

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Warehouse Activities (Stock Location)

Fixed Location
SKU assigned a permanent location, & no
other items are stored there
Fixed-location systems usually have poor cube
utilization
Usually used in small warehouses; throughput
is small, & there are few SKUs

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Warehouse Activities (Stock Location)

Floating (Random) Location
Goods stored wherever there is appropriate space
Advantage is improved cube utilization
It requires accurate and up-to-date information
Warehouses using floating-location systems are
usually computer-based

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Warehouse Activities (Stock Location)

Two other systems sometimes used are:
Point-of-use storage
Inventory stored close to where it will be needed
Used in repetitive manufacturing & JIT systems

Central storage
Contains all inventory in one central location

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Warehouse Activities (Stock Location)

Advantages of Point-of-use Storage
Materials are readily accessible to users
Material handling is reduced or eliminated
Central storage costs are reduced
Material is accessible all the time

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Warehouse Activities (Stock Location)

Advantages of Central Storage
Ease of control
Inventory record accuracy is easier to
maintain
Specialized storage can be used
Reduced safety stock, since users do not
need to carry their own safety stock

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Warehouse Activities
Order Picking and Assembly
When an order is received, items must be
obtained from the warehouse, grouped, &
prepared for shipment, systems used:
Area system
Zone system
Multiorder system

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Warehouse Activities

Order Picking and Assembly

Area system
Order picker circulates throughout warehouse selecting items on
an order -- order is ready to ship when order picker is finished

Zone system
Warehouse is divided into zones, & each picker works only in an
assigned zone -- order is divided by zone, & the items from each
zone are sent to the marshaling area

Multiorder system
Same as the zone system, except that each picker collects items for
a number of orders at the same time

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Warehousing: Physical Control and Security

Physical Control & Security - Elements

Good part numbering system
Simple, well-documented transaction system

Identify the item

Verify the quantity
Record the transaction
Physically execute the transaction

Limited access
Inventory must be kept in a safe, secure (locked) place with
limited general access

Well-trained workforce

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Warehousing: Inventory Record Accuracy

Accurate inventory records enable firms
to:
Operate effective materials management
systems
Maintain satisfactory customer service
Operate effectively & efficiently
Analyze inventory

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Warehousing: Inventory Record Accuracy

Three pieces of information must be accurate:

Part description (part number)

Quantity
Location

Inventory is a tangible asset that is easy to lose track of

unless properly controlled
Inaccurate inventory records will result in:

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Lost sales, shortages, & disrupted schedules

Excess inventory (of the wrong things)
Ineffective MRP / MRPII / ERP

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Warehousing: Inventory Record Accuracy

Causes of Inventory Record Errors

Unauthorized withdrawal of material
Unsecured stockroom

Poorly trained personnel

Inaccurate transaction recording
Poor transaction recording systems

Lack of audit capability

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Warehousing: Inventory Record Accuracy

Measuring Inventory Record Accuracy

It is not practical to expect 100% accuracy.
Tolerance
To judge inventory accuracy, a tolerance level for each
part must be specified
Tolerance is the amount of permissible variation between
an inventory record & a physical count.
Tolerances are set on individual items based on value,
critical nature, availability, lead time, ability to stop prod.,
safety problems, or difficulty of measurement.

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Warehousing: Auditing Inventory Records

Two basic methods of auditing inventory:
Periodic (usually annual) counts of all items
Cyclic (usually daily) counts of specified items

Auditing the system finds causes of record

inaccuracy & eliminate them
Cycle counting does this; periodic audits
tend not to

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Warehousing: Auditing Inventory Records

Factors in good preparation for a physical
inventory are:
Housekeeping
Identification
Training

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Warehousing: Auditing Inventory Records

A physical inventory consists of four steps:

Count items & record count on an attached ticket
Verify this count by recounting or by sampling
When the verification is finished, collect the tickets
& list the items in each department
Reconcile the inventory records for differences
between the physical count & inventory dollars

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Warehousing: Auditing Inventory Records

Problems with annual physical inventory:
Usually the factory/facility has to be shut
down, thus losing production or business
Labor & paperwork are expensive
Job is often done hurriedly & poorly since
there is much pressure to get it done
Many times, more errors are introduced
than are eliminated
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Warehousing: Auditing Inventory Records

Cycle Counting
A system of counting inventory continually
throughout the year
Advantages of cycle counting:
Timely detection & correction of problems
Complete or partial reduction of lost production
Use of personnel trained & dedicated to cycle counting

Count frequency
Number of times an item is counted in a year

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Warehousing: Auditing Inventory Records

Count Frequency should increase as the value

of the item & number of transactions (chance of
error) increase, e.g., base the frequency of count on
annual dollar value usage

Methods used
ABC Method
Zone Method
Location Audit System

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Warehousing: Auditing Inventory Records

Cycle counts can be scheduled at regular

intervals or special times
When to Count
When an order is placed
When an order is received
When the inventory record reaches zero

When an error occurs

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