Case study on material management

Open warehouse system

Presented by:

Pankaj Barapatre

Ikshita sankhe
Open Warehouse System

Introduction:

Management today is never the same what was yesterday. And India, undoubtedly, has
been one place that has witnessed radical changes in Management – be it Man
Management, Money or Material Management. And it goes without saying that concept
of “Lean” in all fields is the name of the game. Lean Organization, Reduced Vendor base,
Shorter Production Cycle, Market Micro-segmentation and Skinned Distribution Points
are all globally accepted jargons of the present day cost conscious world.

The world’s largest combined cycle power plant on a single barge, and, India’s first and
the only barge mounted power plant set up at Mangalore coast set up by GMR Group, a
renowned name in Infrastructure Sector. The plant had all the traditional elements of
Lean concept – A lean human organization structure, lean operation cycle, a single-
segment raw material supplier and a single segment market for its Power.

Add to this was the Open Warehouse System, Where many companies today try to
squeeze costs too hard in trying to meet its own requirements, GMR aggressively
promoted Open Warehouse System to ensure Accessibility to Operation and Maintenance
Teams – thereby provide Product Reliability to end customer – Supply Power on
Demand.

Traditional Hiccups:

An oracle based ERP system put in place centrally integrating the entire Supply Chain
Network. In an Open Warehouse System, the conventional Window-Issue system is
replaced by “Take and Post” system where each member can take material but is
expected to record (t)his (trans-) action in the ERP system, the lone Warehouse member
providing value adding services such as Accounting, Auto Replenishments and key MIS
to Top Management. In any case, authorized Heads would approve all such recorded
transactions the same day.

As is for any other industry, non-manufacturing units in particular, Material Indents for B
class materials to some extent, and particularly C Class materials have been the
maximum. Following is the indicative figures reflecting the phenomenon:
 MOVEMENT OF MATERIAL INDENTS
APRIL ‘ 02 - SEPT’ 02 SEPT’ 02 - MARCH ‘03
Number value Number Value
A Class Items 6% 66% 4% 48%

B Class Items 17% 26% 15% 23%

C Class Items 77% 8% 81% 9%

Total 100% 100% 100% 100%

Traditionally, this pattern holds true everywhere, one may say. But troubled water begins
here and trouble-shooting efforts stop there, as little effort is put on control of B and C
class materials – control in the sense that efforts to ensure that ERP system is posted with
right quantity of materials actually withdrawn. In other words, the system should always
reflect realistic picture of current stock. You never know if/when any particular “B” or
“C” class category is also “V” (Vital) or “E” (Essential) categorized.

During the religious Annual Stock Taking ceremony, it was rightly observed that
discrepancies in “B” and “C” class categorized materials was significantly very high,
touching double digits! A Lo, the Open Warehouse System is deemed a complete failure?
Back to traditional window-based issue system necessitated with rows and tiers reflecting
clerical scenes?

Re-Inventing Open Warehouse System

There were two fundamental issues to decide continuity of Open Warehouse System.
One, Is missing inventory an advantageous exploitation of system in hand; and second, is
physical discrepancies alone attributable to direct failure of Open Warehouse System.

All O&M activities have been taken up against pre-approved O&M Schedule and pre-
authorized Work Permits. An exhaustive review of the list of materials used against Work
Permits during the year was carried out - And that was all that was required to be done to
source missing materials and close each of the discrepancies observed. It was more than
evident that advantageous exploitation of open warehouse system was not prevalent.

And to look at discrepancies as part of industrial practice, are we satisfied by merely

writing off the discrepant inventories, as is done in several other industries across the
globe by prescribing their own benchmarked limits or can we work upon collaborative
efforts to eliminate the discrepancies.
Teamwork

Teamwork is the key to success for a successful and workable Open Warehouse System.
This was simply true as everyone from the Team realized the hindrances in a window-
based closed warehouse system and that would in one way or other affect the speed,
morale and reliability of pro-activeness in their functioning. Everyone from the Team
also realized that each of them have mutually shared goals & objectives and their own
added responsibilities to achieve them in unison.

For an Open Warehouse System to function, each member must have

Trust - what others say (Honest Open Communication) and do (without hidden agenda)

Equality – among all – no black mouthing and no running down others idea;

Act - to Learn, Experiment and Adapt new things

Mutual Respect – appreciate others - not seeking rewards for the act of others

Zero Indenting System [ZIS]

Supply Chain Experts have devised ABC emphasizing on “A” categorized materials as a
value-adding tool. If this holds good for Procurement or Consumption Control, then the
utilization of this system to monitor & reflect realistic stock levels should be maximized.

Zero Indenting System was introduced to facilitate members to take certain materials
from warehouse without going through hassles of recording each transaction every time
into the ERP system. Manual Registers were established where members were requested
to write down details of materials drawn {Material Code, Quantity, Cost Center}. The
materials would be recorded in the ERP system by Warehouse periodically – this is a
parallel of auto-replenishment model. This exercise was however limited to Materials
identified as ZIS materials.

Materials covered under ZIS:

1) All C Class Materials

2) All B Class Materials having history of more than one transaction per day.

ZIS Materials
NumberValue
A Class Items – None 0 0
B Class Items (>one event per day) 03% 08%
C Class Items –All 79% 9%
TOTAL 82% 17%
It is clear from the above table that by implementing ZIS, we are able to cover up a high
82% of the physical inventory and at the same time, inventory control norms are
restricted (not relaxed) only to 17% of the value, the major portion still has to go through
the routine conventional model. The manual registers are auditable and periodic system
updating is authorized by Maintenance Heads.

In practice, the actual scope of ZIS can be made flexible based on System performance
and the confidence levels of Maintenance Heads and the Warehouse.

Perpetual Inventory Verifications [PIV]

The successful establishment of Zero Indenting System was sufficient to boost the morale
of every team member as it facilitated ease of working, but the probability of making the
Open Warehouse System vulnerable still existed. To cement this, what was required was
Perpetual Inventory verification.

The Perpetual Inventory verification was introduced with following mandatory features:

• Regular and continuous activity;

• Perpetual verification of ZIS Inventory by Warehouse towards stock updating;

• Random selection of other Inventory System/Bin Location(s) to be verified;

• Verifications of the entire Inventory, in periodical lots, without any exclusions;

• Verification to continue even if entire inventory is verified the same fiscal year;

• Verification Team should include a Non-Warehouse member

• Accountability of verification results lies with Maintenance Heads;

• Systematic verifications and elimination of discrepancies.

The ZIS inventory was verified twice during a month, once every fortnight, to update
consumptions in the system. The balance inventory was verified in parallel continuously.
Accordingly, entire hundred percent physical inventories were verified over a span of two
months with ZIS inventory verification a continuous affair.

The above necessitated involvement of all team members without whom PIV or ZIS
could not be possible. What was most important was sharing of information. Information
must include that includes bad news, if any. If the bad news remains hidden in the
warehouse bins, then there can be no real improvements.

What followed during the next so-called religious annual physical verification audit was
Stock tally with no discrepancies. To drive home the point, this was followed by series of
external stock audits by agencies such as Price Waterhouse and Lending Institutions.
There were in all six external audits over the next one year – audit schedule and audit
scope of selection both at random, covering high risk, medium risk and low risk
inventory areas. There have been no discrepancies.

In summary, implementing the Open Warehouse System has been an excellent source of
experience for each team member. The opportunity also saw the team to work together to
drive home the point “With a little effort, we can indeed inculcate good team spirit even
in an Open Warehouse”

EXECUTIVE SUMMARY
Lean Manufacturing
Lean manufacturing is the processes, techniques, strategies and initiatives being
implemented by companies around the world that aim to reduce unnecessary and
unproductive tasks, activities and behaviors in the work environment.

Because the times have really gone hard, demanding and intense due to political and
turbulent concerns affecting all nations, firms are currently facing challenges to be able to
keep their profitability and efficiency.

Lean manufacturing not only reduces operational costs but also targets to boost, restore
and significantly raise the competitiveness of a company.

There are seven identified 'forms of waste' within the work environment and systems that
lean manufacturing principally aims to alleviate, if not totally eliminate. These are over
production, over processing, transportation, motion, inventory, waiting and scrap and
defects.

Several advantages of adopting lean manufacturing principles

The first advantage identified by experts from implementing lean manufacturing

techniques and strategies are the reduction of manufacturing time. When the
manufacturing lead-time is significantly lowered, it follows that the operational costs
incurred from the use of energy, utilities and wages from labor’s time will also be
significantly reduced. Thus, lean manufacturing helps companies retain, maintain and
significantly increase their earnings, widen their margins and help them generate savings
from lower costs.

Space is another area where lean manufacturing advantages are clearly and effectively
exhibited. Working space, it is understood, is one of the primary and basic factors that
keep operations of businesses going. Labor and human resource experts estimate that
adoption of good and effective lean manufacturing techniques and strategies will likely
help companies reduce their physical floor space requirements by as much as 5% to 30%.

The figures involved could be small and miniscule for your eyes, but, actually, that will
significantly contribute too much more efficiency and savings. That would be an
advantage almost all businesses will surely look after.

It is found that in general, companies implementing and adhering to lean manufacturing

practices significantly boost and increase their manufacturing productivity by as much as
75% to 125%.

It follows that elimination and reduction of wastes will gradually and efficiently help
boost and rise up earnings and profits in companies.

Warehouse management system

Warehouse management systems (WMS) are best described as the advanced technology
and operating processes that optimize all warehousing functions. These functions
typically begin with receipts from suppliers and end with shipments to customers, and
include all inventory movements and information flows in between. Warehouse
management systems have typically been associated with larger, more complex
distribution operations. Small, non-complex distribution facilities have historically not
been viewed as candidates to significantly streamline operations and reduce costs.
However, even smaller and midsize companies are increasingly recognizing the
significance of warehouse management systems in today's environment of integrated
logistics, just-in-time delivery, and e-commerce fulfillment.

In practice, successful WMS solutions are generally designed to merge computer

hardware, software, and peripheral equipment with improved operating practices for
managing inventory, space, labor, and capital equipment in warehouses and distribution
centers. Implementation of a WMS allows a company to increase its competitive
advantage by reducing labor costs, improving customer service, increasing inventory
accuracy, and improving flexibility and responsiveness. A WMS enables a company to
manage inventory in real time, with information as current as the most recent order,
shipment, or receipt and any movement in between.

WMS Benefits

1. Faster inventory turns. A WMS can reduce lead times by limiting inventory
movement and improving the accuracy of inventory records, thereby supporting a JIT
environment. As a result, the need for safety stock is reduced, which increases inventory
turnover and working capital utilization.

2. More efficient use of available warehouse space. In addition to reducing safety-

stock requirements, a WMS can often increase available warehouse space by more
efficiently locating items in relation to receiving, assembly, packing, and shipping points.
This increased efficiency can both improve productivity and lower inventory holding
costs significantly.

3. Reduction in inventory paperwork. Implementation of a real time WMS can

significantly reduce the paperwork traditionally associated with warehouse operations, as
well as ensure timely and accurate flow of inventory and information. Receiving reports,
pick tickets, move tickets, packing lists, etc., which are typically maintained as hard
copies, can all be maintained electronically.

4. Improved cycle counting. Companies can use WMS to capture relevant data (e.g.,
frequency of movement, specific locations, etc.) to systematically schedule personnel for
cycle counts. Such cycle counts not only can improve the accuracy of inventory records
for planning purposes, but also can eliminate or reduce the need for complete, costly
physical inventories.

5. Reduced dependency on warehouse personnel. Implementing a comprehensive

WMS facilitates standardization of inventory movements, picking methods, and
inventory locations. This standardization helps to minimize reliance on informal
practices, resulting in reduced training costs and lower error rates.

6. Enhanced customer service. By streamlining processes from order to delivery,

companies can more accurately determine product availability and realistic delivery
dates. A WMS can automatically identify and release back-ordered inventory and also
can reduce returns as a result of increased shipment accuracy.

7. Improved labor productivity. A WMS helps optimize material flow, typically by

incorporating several inventory picks into one or by "cross docking". Cross docking is a
process that routes incoming shipments to the location closest to the outbound shipping
dock, thereby reducing warehouse handling.

Advantages for WMS Users

For Management: WMS can help management to access an instant picture of

* How much inventory exists in the warehouse

* How many orders are currently being shipped

* What are the stages of processing of pending orders

* Staff productivity details

* Goods shipped by the warehouse over any given period of time.

The warehouse management can determine how much inventory exists in the various
stages of processing unlike in non-automated warehouse management.

Sales people can determine how much inventory is available and can relate better to the
warehouse staff thus bettering their Customer Relationship levels. Customer Managers
can reserve inventory for a customer thereby ensuring that it will not be shipped to
anyone else. Inventory Managers can track transactions at a very fine detail to diagnose
unexpected sudden changes in inventory. For example, if we had thousands of pieces of
some SKU yesterday and today we don't have any, then where did they go? Were they
shipped to some other customer? Were they sent to some other warehouse of the
company to be shipped from there? Or did they get lost or were picked away? WMS
helps answering such problems. The reports generated during checking processes enable
policy decision to be taken about the reliability of the suppliers. WMS is designed to be
flexible i.e., the process flow of the DC/Warehouse can now be modified easily as
business needs change.

For Warehouse Supervisors: Productivity reports for each operator can now be
generated and used to implement productivity based remuneration schemes or to fire
unproductive employees. For those warehouses that have to cope up with Union
problems these reports can help the company tremendously. Efficient tracking of
warehouses activities are possible with WMS as it provides a comprehensive set of web-
enabled reports detailing all the activities happening in the warehouse and their effect on
the inventory management. WMS also helps to detect bottlenecks in operations, which
can increase the overall throughput of the warehouse.

For Warehouse Operators: WMS provides graphical user interfaces (GUIs) wherein
most of the time the operator has to just scan the barcodes. Default navigation of cursor
on the screen mimics the standard business rule. Thus WMS eases the operator's task and
makes the data input process fast, increasing the overall efficiency of the operator. Some
programs like Locating and Pulling are especially designed to run on hand-held radio
frequency terminals. These terminals make the task of pickers and locators easy, as these
are easy to carry. Modern WMS programs have been coded with extra emphasis on
scanner based data input to minimize the need for keyboard or mouse input.

The Perpetual Inventory Verification System.

Perpetual inventory system is also known as "Automatic Inventory System". Perpetual
inventory system is a technique of controlling stock items by maintaining store record in
a manner such that stock balances at any point of time are readily available. The terms
'Perpetual Inventory' refer to the system of record-keeping and a continuous physical
verification of stocks, with reference to store records.

Thus, the two main functions of perpetual inventory system are as follows.

1. Recording store receipts and issues to determine the stock in hand at any time, in
quantity or value or both, without the need for physical counting of the stock.

2. Continuous verification of the physical stock with reference to the balance recorded in
the store record is convenient for the management.

Advantages Of Perpetual Inventory System

* Perpetual inventory system provides an opportunity to verify the physical stock of

materials.

* Perpetual inventory system helps in rapid stock checking which, in turn, helps in the
preparation of interim accounts.

* A moral check on the store staff to maintain proper stock records.

* The investment in materials and supplies may be kept at the lowest point.

* It is not necessary to stop the production so as to carry out a complete physical

stocktaking.
* Perpetual inventory system helps to avoid deterioration, obsolescence etc.

* Perpetual inventory system helps to discover or find out discrepancies and errors and
remedial action can be taken quickly.

* Timely replenishment of stock is facilitated by means of recording the level specified in

the bin card.