NOTES: SUMMARY WAREHOUSE AND INVENTORY MANAGEMENT

WAREHOUSE MANAGEMENT, WHAT IS IT ALL ABOUT?

1.Effective inventory management is all about knowing what is on hand, where it is in use,

and how much finished products are produced. Inventory management, or inventory

control, is an attempt to balance inventory needs and requirements with the need to

minimize costs resulting from obtaining and holding inventory.

2. Warehousing refers to the activities involving storage of goods on a large-scale in a

systematic and orderly manner and making them available conveniently when needed.

Warehousing means holding or preserving goods in huge quantities from the time of their

purchase or production until their actual use or sale.

3.Warehouse costs include:

a.Handling Cost. All expenses associated with moving product in or out of

the warehouse: equipment and labor, depreciation of equipment cost, and the

cost of fuel, or electricity to power the equipment.

b. Storage Cost. Storage expenses are costs associated with “goods at rest.”- building cost

c. Operations administrative Costs: supervision, clerical effort, information technology,

supplies, insurance, and taxes

d. General administrative expenses-General management, non operating staff, and general

office expenses are example

4.Warehouse is necessary for:

Seasonal production, Large scale production, seasonal demand, quick supply, continuous

production, price stabilization

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 5. Issues affecting warehousing:

a. Market and product base stability- market potential if for long term

b. Types of materials to be handled: in boxes, in drums, weights, shelf life, humidity

and temperature

c. Warehouse type size and location- customer service level, time compression int the

supply chain whether company owned or 3rd party

d. inventory and inventory location

e. level of technology

f. choice of unit load, pallets, roll or cage pallets, tote bins

g. vehicle loading and unloading and vehicle utilization.

TYPES OF WAREHOUSES:

a. Private Warehouses- owned by the manufacturers or traders to store, exclusively, their own

stock of goods

Advantages :1 Private warehousing offers better monitoring systems over the handling and

storage of products

2. Inventory reporting is more accurate – because own employees are managing

inventories

b. Public Warehouses- warehouses for rent for public use but controlled by government

policies expenses are distributed over several consignments of their clients.

Advantages: 1. Public warehouses are usually strategically positioned and easily available.

2.Less expensive

3. reduced risk in their operations.

Disadvantages of public warehousing

1. Problems in communication due to system incompatibility.

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c. Government Warehouses- owned, managed and controlled by central or state governments

or public corporations or local authorities for govt and private use

d. Bonded Warehouses-Bonded warehouses are used to store imported goods for which

import duty is yet to be paid. In case of imported goods, the importers are not allowed to

take away the goods from the ports until such duty is paid.

e. Co-operative Warehouses- These warehouses are owned, managed and controlled by co-

operative societies for members of the society

LOCATION OF WAREHOUSES
Factors affecting location:
1.Market service area and cost of distribution from the warehouse to the market
service area.

2. Satisfaction of transport requirements and facilities available in the form of rail,

link roads and road vehicles.

3. Transportation rates prevailing in the area and distribution costs per unit.

Characteristics of Ideal Warehouses:

1. Warehouse should be located at a convenient place near highways, railway
stations, airports and seaports where goods can be loaded and unloaded easily.
2. Mechanical support or equipment should be available for loading and
unloading the goods. This reduces the wastages in handling and also minimizes
handling costs.
3. Adequate space should be available inside the building to keep the goods in
proper order.
4. Well-ventilated, right temperature and humidity, and well protected from rain,
dust and light
5. Provided with fire-protection system
6. With security system such as guards and CCTVs

Qualitative factor rating method of comparison, Example

WHSE A WHSE B WHSE C
Convenience-to roads 25 20 25
Adequate space 25 20 25
Available eqpt 18 20 12
Ventilation, humidity 10 5 8
Provided w/ fire systems 10 5 8
With security system 7 5 8
(IDEAL SCORE: 100 PTS.) 85 75 86

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 Factors affecting the number of warehouses:
– Inventory costs
– Warehousing costs
– Transportation costs
– Cost of lost sales
– Maintenance of customer service level

7.FUNCTIONS OF THE WAREHOUSE.

A. MOVEMENT

1.Receiving -This includes the physical unloading of incoming transport, checking, recording

of receipts, and deciding where the received goods are to be put away in the warehouse. There

are also unpacking and repacking activities as well as quality control checks for damages.

2. Transfer or Putaway – Binning and storing the goods in their respective locations, from

the receiving docking area.

3.Order picking / selection – Goods are selected from order picking stock in the required

quantities and at the required time to meet customer orders. Picking often involves break bulk

(whole pallet) quantities, but ordered by customers in less than pallet quantity. Order picking

is important for the good design and management of picking systems and operations are

consequently vital to effective warehouse performance. Packing slips are made up at this

point.

4. Cross-docking - Move products directly from receiving (incoming truck to the shipping

dock, outgoing truck) – these products are not stored in the warehouse. It eliminates the

transfer or put-away of products, thus reducing costs and the time goods remain at the

warehouse

5.Shipping – Picked goods as per the customer order are consolidated and packed according

to customer order requirements. It is shipped according to customer orders and respective

destinations.

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B. STORAGE FUNCTIONS:

1.Temporary storage –includes only the storage of product necessary for basic inventory

replenishment. Temporary storage is required regardless of the actual inventory turnover.

The extent of temporary storage depends on the design of the logistics system and the

variability experienced in lead time and demand. A goal of cross-docking is to utilize only

the temporary storage function of the warehouse.

2.Semipermanent storage – is the storage of inventory in excess of that required for normal

replenishment. This inventory is referred to as buffer or safety stock. The most common

conditions leading to semi permanent storage are:

2. For Seasonal demand and Erratic demand

C. The information transfer functions of a warehouse:

They occur simultaneously with the movement and storage function. Information on

inventory levels, throughput levels (amount of product moving through the warehouse),

stock keeping locations, inbound and outbound shipments, customer data, facility space

utilization and personnel is vital to the successful operation of a warehouse.

Two main categories of profiles make up a basic warehouse profiling set:

1. Customer order profiles - the outbound activity, i.e., how the

customers are ordering the products.

a. Order Mix Distribution- The goal is to determine what percentage of your customers

is ordering full and broken carton quantities of the same item, before investing time

and money in changing the current storage strategy.

b. Order Increment Distribution-

The order line distribution of the percentage of a full carton ordered is beneficial

when evaluating if the current packaging is in logical increments for the customer-

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 you may change the carton size, break down cartons at receiving, or encourage

customers to order full carton;

c. Order lines distribution- The distribution of the number of lines contained on each

order is important when evaluating operating strategies

Example- single-line piece-pick orders you may want to consider batch label

picking these orders.

2.Item Activity Profile: Primarily item activity profile is used to allocate each item in the

warehouse item activity profiles are beneficial when analyzing products activities for the

purposes of determining storage mode, product slotting, and facility layout options.

a. Popularity profile - is a ranking of the items based on how often they are ordered or

picked (frequency).

b. Volume profile is a ranking of the items based on how much is ordered (cube

movement).

Item order completion profile -reveals the percentage of the orders that will be

completed by a subset of the items and is valuable when conducting cost benefit

analysis for improved productivity.

WAREHOUSE OPERATIONS - CENTRALISED AND

DECENTRALISED
1.Decentralised warehousing operations, each warehouse is considered as a separate entity.

Therefore, each warehouse will have a separate safety stock, there will be orders from the

lower warehouse to the upper warehouse. Each warehouse will optimize inventory

individually.

 This type of decentralizing will be advantageous for the following situations.

 Consumption centers are located at different places and at distant places. The

transaction of goods is very high.

 This prevents obsolescence and accumulation of surplus material.

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  But the system has the disadvantage of having high running cost due to increased

stock and personnel in each warehouse and due to handling of more information.

2. Centralized system of warehousing operations, order processing, storing of safety stocks

and control stock movements will be done centrally by a central warehouse. The important

requirement for this centralized system is a well-established information system. This system

has the following advantages:

 Orders for multiple items on a single source can be bunched together,

 There will be a reduction in safety stock

Reference: From Online Logistics Course at Shipping College, May 2020