Ware House TD Sol

Warehouse And Materials Handling Management LSCM3041
Chapter One
1. Overview of Warehouse and Material Handling

Management:
After completion of this chapter the student will be able to:-
 Define warehouse and material handling management
 Understand the role of stores management in any organization
effectiveness
 Identify duties, responsibilities and functions of stores management in any
organization
 Describe major classifications of stores management
 Identify major principles of stores management
1.1. Introduction
It has to be ensured that all materials received in stores are properly stored to avoid
Deterioration, and to locate promptly when required to be issued. Stock Ledger posting of all
receiving and issue documents shall be done promptly and distributed to concerned
departments. This shall help to keep book balances in conformity with physical balances most
of the time.
Haynes defines “Material handling embraces the basic operations in connection with the
movement of bulk, packaged and individual products in a semi-solid or solid state by means
of gravity manually or power-actuated equipment and within the limits of individual
producing, fabricating, processing or service establishment”. Material handling does not add
any value to the product but adds to the cost of the product and hence it will cost the customer
more.
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Storekeeping is the function of receiving, storing and issuing of materials. In almost

industries, the material (raw materials, finished, components, tools--- etc) represents a very
large investment.
Once materials are acquired they do not directly enter in to production nor are provided to
user departments immediately. They should be stored until time of requirement, for storage
guarantees continuity of supply or uninterrupted service to user departments. The very nature
of the storage system is thus to act as a buffer (safeguard) between acquisition and other
various consuming department.
The stores function is responsible for receipt, physical upkeep and maintenance, and
distribution of larger sums of moneys in the form of stocks. The management of inputs and
output flow will require a good deal characteristics and volume of transaction the reporting,
accounting, and verifying system should be devised. The stores function must be managed
and operated in a highly efficient way.
The stores should be considered as a temporary location for materials needed for operational
purposes, and should be planned, organized and operated in such a way that the life – time of
each stock item is as short as possible consistent with economic operation. The only good
reason for carrying operating stocks is that the material needed is obsolete, redundant or
surplus material is simply money sitting on a shelf requiring more money to be spent on its
custody. In general depending on the nature of the materials if demand is steady or highly
predictable then we should store for very short periods, when demand is not highly
predictable then storage for longer periods may be required.
In a mass production unit, vast quantities of materials and component parts have to be
provided every day large sums of money are involved and it is essential to organize the stores
functions so that the investment is kept to the minimum. A big automobile factory can use
hundreds of thousands worth of material each week. From the stores point of view the most
important thing to keep the quantities of incoming goods as near as possible to the
departments and the machine shops and assembly shops and assembly shops will use them
daily.

1.2. Stores Management

Stores play a vital role in the operations of company. It is in direct touch with the user
departments in its day-to-day activities. The most important purpose served by the stores is to
provide uninterrupted service to the manufacturing divisions. Further, stores are often equated
directly with money, as money is locked up in the stores.
Activity 1.1
 1. Define warehouse and materials handling management.
 Identify the major role of stores management to economic development
 What are the major duties and responsibilities of store keeper?
 Explain the major functions of store management.

1.3. Duties and Responsibility of Store keeper
 Receive all incoming materials and see that the quantities are correct According to
invoice
 See that the daily Goods Receipt Register is properly is properly maintain
 Arrange for inspection of the material received
 Ensure that Goods Inward Notes are raise and distributed without delay
 See the materials are properly stored against deterioration, theft, etc and that of they
are readily available for issue.
 Issues materials against authorized requisition of production and other department
 Maintain accurate records (bin cards) of materials received, issue and in storage and
see that the posting are up-to-date.
 Ensure that all documents relating to receipt and issues are sent to stock control,
Accounts and other departments without delay
 Carry out stock verification in accordance with the procedure laid down by the
management.
1.2.2 Objectives, Responsibilities and Functions of Stores

A. Objectives of Stores Management
As emphasized earlier, services to the user departments is the principal objective of stores
functions. It is, however, obviously desirable to provide the services as economically as
possible. Frequently, but not always, the most important consideration is to keep the stock
value at the lowest practical level to economize in the use of working capital, which is most of
the time scarce, and to minimize the cost of storage. It implies that there is some conflict
between the need for efficient and effective services and the need to economize in
stockholdings.
On the one hand, the more stock held, the easier it is to have items available on demand, on
the other hand, larger the stock held, greater the cost, though of course ordering very
frequently in order that holding cost may be kept low can itself lead to high cost. It is,
therefore, necessary to seek, find and operate a satisfactory compromise between the various

opposing costs, i.e. optimizing stock holding in such a way that both operating and financial
objectives are attained. At no point of the time, work should suffer for want of critically
required materials and at the same time unnecessary funds (working capital) are not blocked
in stocks, especially inactive/slow moving items. In addition, the stores department itself
should be economically operated with other functions to achieve saving in material and other
costs wherever practical. Cost of transportation shall be lowest possible by selecting right
mode of transportation and an effective carrier for the given materials. Many items, especially
Insurance spares may be required to be kept in stores for years together. It shall, therefore, be
essential that proper methods of storage and preservation be applied so that items do not
deteriorate, loose some of their properties and become unusable due to atmospheric conditions
and biological elements. Another important objective of stores function is to minimize
material handling cost, safety being another important consideration.
Objectives of Stores Management as such can be summarized as under:
 To provide services to operating functions by balanced flow of raw materials,
components, tools and tackles and other consumable materials.
 To provide these services in the most economical manner, keeping the stocks at the
optimum level and bringing down inventory holding and ordering costs to the
minimum
 To account for all the materials received and issued proper storage to avoid
deterioration and loss of materials, economical material handling, stock verification
and reconciliation of discrepancies.
 To receive scrap and other discarded materials and arrange prompt and most
economical disposal.
 Maintain proper coordination and cordial relationship with departments.
B. Responsibilities of store management
Stores functions are responsible for receipt, custody and issue of very large sum of money in
the form of goods and for determination of appropriate quantities of materials to meet
operational needs in most economical manner. Stores operations provide both service and
control functions. First they organize and control flow of materials for Operation and

Maintenance and secondly as custodial and controlling agency. It is responsible for safety and
physical control of substantial portion of organizations’ working capital and finally for many
items, the existence of stores permits quantity buying for saving in prices, paper work and
handling.
Stores need to be considered as a temporary location of materials for operation purposes and
should be planned, organized and operated in such a way that period of residence of each item
is shortest possible, consistent with economic operations. Since supply cannot be exactly
matched with demand, we have to carry operating stock.
C. Functions of Stores
Following are the broad functions of stores management.
i. Receiving and Dispatch:
All the incoming materials from the suppliers and other units of the organization shall be
received at stores. Arrangement need to be made for transportation, unloading and receiving
of materials, and handing over the same to custody group checking up of packages, checking
up materials with details of invoices and purchase order, identifying discrepancies, if any,
record keeping, preparation of Stores Receiving cum Inspection Report, and for arranging
dispatches of materials- returned to suppliers, sent for repair or transferred to other units of
the organization. Claims for short delivery, non-delivery or damages en- route are required to
be lodged in time with the underwriters, carriers and suppliers as per the provision of
contracts. Replacement supplies need to be arranged for above losses and also for technical
rejections (supply of wrong or substandard materials by the suppliers)
ii. Inspection of Materials
It has to be ensured that every item received in stores is checked from quality angle. Any
failure of poor quality materials may put the organization to heavy losses, especially, those of
components of vital equipment. Quality plans need to be developed for critical and high
consumption value items. Inspection can be carried out by independent Quality Assurance
Group or by user department or by third party, depending upon the set up. Stores, however, is
required to maintain continued and sustained liason with inspection people for prompt
inspection.

iii. Issue of materials & maintenance of records:

Stores department, on receipt of requisition/indent from user departments shall identify
requirements and issue materials without any delay. Proper records need to be made of issue
and receipt documents.
iv. Warehousing and preservation:
All materials received from Receipt Section shall be stacked properly and bin location
recorded to facilitate issues. Necessary steps need to be taken for preservation of materials
especially those, which are to be stored for longer period. Preservation methods need to be
developed in consultation with suppliers/user departments. Steps also need to be taken for
security and safety of materials and also safety of personnel from various hazards by taking
precautions in handling the materials.
v. Stock control records:
Day to day receipts and issues shall be posted in stock ledgers or computer master so that the
current balances of each item are known without physical counting or checking.
vi. Identification and disposal of scrap, obsolete and surplus materials:
All scrap arising, worn-out and unusable spares etc. shall; be received in scrap yard and after
identification and formation of lots shall be disposed off promptly. Similarly, obsolete and
surplus items shall be identified and most economical disposal action is taken.
vii. Physical stock taking/ stock verification:
It has to be ensured that physical stocktaking of each item of stores is done at least once in a
year, book balances tallied with ground balances. Discrepancies, if any noticed are properly
investigated, reconciled and adjusted.
viii. Identification and codification:
It is also the function of Stores to properly and rationally codify each item of stock, prepare
the code catalogues and distribute to all the concerned. This shall involve identification,
systematic defining and describing all items, adoption of material specification, unit of
measurement, introduction of a degree of standardization and variety reduction. In order to
fulfill these functions, stores shall coordinate closely with other departments such as users,
Planning, MIS etc.

ix. Inventory control:

This shall involve fixation of inventory levels, safety stock and monitoring availability,
watching outstanding quantities, preparing purchase requisitions for items reaching reorder
levels, analyzing consumption pattern, identification of surplus and obsolete materials and
initiate disposal action.
Stores operation shall be divided into three distinct Groups:
i) Receipt and Dispatch Functions
Clearance & Dispatch
Transit Insurance
Transport Agencies Contracts
ii) Custody & Warehousing including inspections
iii) Materials Planning & Inventory Control
Receipt & Dispatch Group
This Group shall be responsible for the following functions
 Receipt of dispatch documents and keeping their records
 Collection of consignments from Railways/ Road Carriers
 Taking delivery of consignment brought on door delivery basis.
 Arranging open delivery if consignment found in outwardly damaged conditions or
packages delivered short
 Receipts recording in ‘Materials Inward Register and raising Unloading Reports.
 Handling and handing over materials to custody or user departments
 Process freight payments to the carriers,
 Expediting deliveries of critically required materials
 Securing marine insurance policies and arranging payment of premium to underwriters
 Furnishing monthly return of consignments received against the open policy of transit
insurance and to ensure availability of sufficient premium amount for the goods in
transit
 Expedite settlement of claims on the carriers/underwriters/suppliers.

 Arranging dispatch of materials to out-station suppliers or other units of the

Corporation.
 Any other work connected with receiving and dispatch work.
Custody, Warehousing and Inspections Group
This Group shall be responsible for the following functions:
 Receipt of materials from Receiving & Dispatch Group along with the unloading
reports, checking of materials with the U.Rs. Arrange inspection and check
measurement by user departments, Generation of Stores Receipt Voucher, Billing,
Binning and Ledger posting updating of computer master.
 Issue of materials to user departments, complete issue documentation, ledger posting
of
 Issue Vouchers/ updating of computer master.
 Receive the surplus materials from user departments, binning, posting and maintaining
records of Stores Return Note and their accounting.
 Issue of materials for inter-unit transfer, preparation, posting and accounting of Stores
 Transfer Notes.
 To plan and arrange preservation, storage and material handling facilities.
 Facilitate physical stock verification and reconciliation of discrepancies, if any.
 Preparing and posting of Adjustment Vouchers so as to bring the ground balance in
line with book balance, when discrepancies are noticed.
 Receive scrap materials and facilitate disposal action including handing over of such
materials to prospective buyers.
 Identify obsolete/surplus items and facilitate disposal action in association with
Material Planning & Inventory Control Section.
 Custody of rejected materials and pursuing with the Suppliers for replacement of
rejections/ damages/shortages.
 Preferring claims with the Carriers/ Under Writers for non-delivery of the
consignments and for damages and shortages.
The functions of stores can be classified as follows:

 To receive raw materials, components, tools, equipment’s and other items and account
for them.
 To provide adequate and proper storage and preservation to the various items.
 To meet the demands of the consuming departments by proper issues and account for
the consumption.
 To minimize obsolescence, surplus and scrap through proper codification, preservation
and handling.
 To highlight stock accumulation, discrepancies and abnormal consumption and effect
control measures.
 To ensure good housekeeping so that material handling, material preservation,
stocking, receipt and issue can be done adequately.
 To assist in verification and provide supporting information for effective purchase
action.
1.4. Objectives Store Keeping
o To foresee (determine): the need of the organization for materials or products →to
avoid either too much or too little of quantities arranged in the store.
o Purchase order: to request the purchase in charge to order the economical amount.
o Inspection (checking): to ensure that materials are received in according to the
purchase order in quality and quantity.
o Storage: to keep everything in its place. It should be stored in such a manner that it
can easily located and accessible. Provision of better storage facilities.
o Issue: to issue the materials and goods only when properly authorized persons put
his/her signature up on the document.
o Store record: maintain the correct record of any thing received/issue from store.
o Coordination with other department: stock verification/stock taking physical verify
the quantity and conditions of good lying in the store.

Function of Store Management

Any managerial function is exercised to achieve a specific objective for which it is set.
Similarly in achieving the above mentioned objectives, storage performs the following
functions.
 Receive the material, check quantities and quality against purchase order, invoices
and specification, certifies deliveries and reports shortages, deficiencies in quality
and partial deliveries, and prepares receiving reports.
 Provide adequate and proper storage and preservation.
 Prepare and maintain bin, cards, periodically checks inventory records against
actual stock.
 Minimize obsolescence, surplus, and scrap through proper codification,
standardization and preservation.
 Highlight stock accumulation discrepancies and abnormal consumption and effect
control measures.
 Ensure good housekeeping so that material preservation, and stock receipt and
issue can be done accurately.
 Assist in verification and provide supporting information for effective purchase
action.
 Keep and maintain store areas in a clean and orderly condition so as to facilitate
handling and preserve all safety regulation and security measures.
1.5. Principles of Store Keeping
Store keeping is both a science and an art. It is a science in a sense that one can learn from
books, experience persons, the principles of and rules of good store keeping, where as it is in
that it comes only with practice.
Some Principles of Good Store Keeping
 Assign a proper place of every thing
 Keeping every item in it assigned place
 Maintaining adequate records but not complicated records of item in store
 Easy and prompt issues and receipt of items

 Keeping in an orderly fashion

 Providing protection against damage
 Issuing oldest materials first
 Providing enough space in store for martial handing equipment like shelves, racks,
bins
 Having regular program inspection, physical verification and maintenance of store and
 Keeping records and inventory of store up to date.
1.6. Classification of Materials

Classification is division of materials in to different groups based on similarities or technical
affinity. In other words, classification means systematic division, grouping or categories of
store materials or items. In any factory the assets can be broadly divided in to capital
equipment, tools, general stores and production materials (raw materials and finished
components). By means of Classification, each of these broad categories in sub-division in to
smaller groups for convenience.
Classification of materials refers to groups of materials according to their nature in suitable
categories, i.e. classifying as consumable and tools. For instance items like soap, cotton,
lubricating oil etc. may be classified as consumable stores; all forms of tools including jigs
and fixtures may be classified as tools. There are different approaches or methods of
classifying store items. some of the major classifications of materials are
These are:
I) General classification
II) ABC Classification
III) Classification according to manufacturing process
IV) Classification of inventories
V) Classification of end use
I. General Classification
Materials may be classified or grouped according to their general nature, use, or condition.
These are

 Raw materials which must be purchased and processed to convert them into finished
product.
 Supplies or indirect items which aid in manufacturing processes. They do not form part
of the finished product. Example of supplies are oils, office supplies construction
materials spare parts for repair and maintenance.
 Work in progress which consists of all materials parts, components, assemblies,
subassemblies that are being processed or assembled in to finished products.
 Finished products are the final products, units or assemblies that have been manufactured
and are complete and ready for delivery to the customers.
II.ABC Classification or the value volume Analysis
For effective control of inventory it is normal to find that all stock items fall into the
following three broad classifications:
1. Classification A- it includes the top 10% store items accounting for the higher
inventory investment, which is about 70% of the annual or store cost.
2. Classification B- it includes about 20% of the items which account for moderate share
of expenditure on stock or store items. This usually forms 20% of the total annual
investment on stores.
3. Classification C- it includes the largest remaining items usually about 70% of the total
annual purchase which account for a small fraction of the total investment usually
about 10% on the stores.
Maintaining inventory through counting, placing orders, receiving stock, and so on takes
personnel time and cost money. When there are limits on these resources, logical move is to
try to use the available resources to control inventory in the best way. In other words, focus on
the most important items in inventory. This means that all inventories cannot be controlled
with equal attention. Some inventories are simply too small or too unimportant to warrant
intensive monitoring and control activity. In addition, implementing new inventory
management systems priority ranking must be developed to allow management to decide the
order in which to include the inventories items in the control system. Because it is important
to recognize that all inventory items don’t have the same importance. Items differ in terms of

holding costs, shortage costs, prices, annual volume, the need for security and so on. Example
in a firm that sells small but expensive items, such as Camera generate more profit and carry a
higher loss due to theft than say a children’s toys.
Too many mangers apply perpetual inventory control systems universally across every item
maintained in stock when a partial control system would be much more practical. Partial
inventory systems minimize the expense involved in analyzing, processing, and maintaining
records, a substantial cost of any inventory control system. The ABC method is one such
approach, focusing control efforts on that small percentage of items that account for the
majority of the firm's sales.
ABC analysis divided on hand inventory into three classifications on the basis of annual Birr
volume. ABC analysis is an inventory application of what is known as the Pareto principle.
The Pareto principle states that there is a "critical few and trivial many". In the nineteenth
century Pareto, in a study of the distribution of wealth in Milan, found that15 to 20 percent of
the people controlled 75—80*% of the total annual inventory value/wealth. This logic of the
few having the same greatest importance and the many having little importance has been
broadened to include many situations and is termed the Pareto principle. This is true in our
everyday lives (most of our decisions are relatively unimportant, but a few shape our future)
and is certainly true in inventory systems (where a few items account for the bulk of our
investment). If the annual usage of items in inventory is listed according to birr volume and
that a larger number of items accounts for a small birr volume. Then one idea is to establish
inventory policies that focus resources on the few critical inventory parts and not the many
trivial ones. It is not realistic to monitor inexpensive items with the same intensity as very
expensive items.
The letters “A,” “B,” and “C” refers to different classes of items
A. high value items: The 15 to 20 percent or so* of the items that account for 75 to 80
percent of the total annual inventory value i.e., it account for a high birr usage volume.
B. Medium value items: the 30 to 40 percent of the item that account for approximately 15
percent of the total annual inventory or those items that are moderately important and account
for a moderate birr usage volume.

C. low value items: The 40 to 50 percent of the items that account for 10 to 15 percent of the
annual inventory or those items that is least important and account for a low birr usage
volume.
Quite often, items are classified on the basis of annual birr value (i.e., unit price X annual
volume). The birr usage volume that an item accounts for measures the relative importance of
that item in the firm's inventory. Note that value is not necessarily synonymous with high unit
cost. In some instances a high-cost items that generates only a small Birr volume can be
classified as an A item.
To determine annual birr volume for ABC analysis, we measure the annual demand of each
inventory item times the price per unit. The next step is to arrange the products in descending
order based on the computed birr usage volume. Class A item are those on which the annual
birr volume is high although such items may represent only about 15% or less of the total
inventory items, they roughly represent 70%-80% or more of the total Birr usage. Class B
items are those inventory items of medium annual birr volume. These items may roughly
represent about 30% of inventory items and 15% to 25% of the total value. Those with low
birr volume are class C, which may roughly represent only 5% of the annual birr volume but
about 55% or more of the total inventory items.
Graphically, the inventory of many organizations would appear as presented in the figure
below.
Figure 1.1. Percentage of the A, B, and C categories and their inventory value may vary
according to situation.

The purpose of classifying items according to their value is to establish the proper degree of
control over each item held in inventory, clearly, it is wasteful and in efficient to exercise the
same level of control over C items as A items. Items in the A classification should be
controlled under a perpetual inventory system with a much detail as necessary. Analytical
tools and frequent counts may be required to ensure accuracy, but the extra cost of tight
control for these valuable items is usually justified. The manager should not retain a large
supply of reserve or safety stock because this ties up excessive amounts of money in
inventory, but she/he must monitor the stock closely to avoid stock outs and lost sales.
Control of B items should rely more on periodic central systems and basic analytical tools
such as economic order quantity (EOQ) and reorder point analysis. The manager can maintain
moderate levels of safety stock for these items to guard against shortages, and can afford
monthly or even bi monthly merchandise inspections. Because B items are not as valuable to
the business as A time, less rigorous control systems are required.
C items typically comprise a minor proportion of the firms’ inventory value and as a result,
require the least effort and expense to control. These items are usually large in number and
small in total birr value. The most practical way to control them is to use uncomplicated
records and procedure. Large levels of safety stock for these items are acceptable because the
cost of carrying them is usually minimal. Substantial orders sized often enable the business to
take advantage of quantity discounts without having to place frequent orders. The cost
involved in using detailed recording and inventory control procedures greatly outweigh the
advantages gleaned from strict control of C items.
One practical technique for maintaining control simply is the two-bin system, which keeps
two separate bins full of material. The first bin is used to fill customer orders, while the
second being is filled with enough safety stock to meet customer demand during the lead-time
for the order; the manager uses the safety stock in the second bin to fill customer demand. A
variation of this technique is the level control system. Here, the manager fills the bin with the
usual amount of safety stock and marks the level with a brightly colored line. When the
supply of material reaches the colored line, s/he orders enough stock to refill the bin.

ABC analysis procedure

1. Compute the annual usage value of each and every item of all the products using the
formula: Annual usage (Annual consumption) X (unit price)
2. Arrange the items in the descending order of the usage value computed in step1
3. Observe how your classification fits into A,B & C
Examples of ABC analysis
Example 1: A business firm has organized its 10 inventory items on an annual birr-volume
basis, shown below are the items (identified by stock number), their annual demand, unit
price, annual birr volume, and the percentage of the total represented by each item. In the
table below, we use to show these items grouped into ABC classifications.
Table 1.1
Percent of annual
Item Percent of Annual unit Annual
Dollar volume
stock number of Volume X cost = Dollar Class
number items stocked (units) volume
#10286 20 1000 $90,000 90,000 38.8% A

72%
# 11526 500 $154,00 77,000 33.2% A
#12760 1,550 17 26,350 11.3% B
#10867 30% 350 42.86 15,001 6.4% 23% B
#10500 1000 12.50 12,500 5.4% B
# 12572 50% 600 1417 8,502 3.7% C

#14075 2000 .60 1,200 .5% C
#01036 100 8.50 850 .4% 5%
C
#01307 1,200 .42 504 .2%
C
#10572 250 .60 150 .1%
8,550 $232,057 100.0%

Policies that may be based on ABC analysis include the following

1. Purchasing resources expended on suppliers’ development should be much higher for
individual A items than for C items.
2. A items as opposed to B& C items, should have tighter physical inventory control:
perhaps they belong in a more secure area, and perhaps the accuracy of inventory
record for A items should be verified more frequently.
3. For casting A items may warrant more care than forecasting other items.
Better forecasting, physical control, supplier reliability and an ultimate reduction in
safety stock can all result from appropriate inventory management policies, ABC
analysis guides the development of those polices.
In summary, a business owner minimized total inventory costs when she/he spends time and
effort controlling items that represent the greatest inventory value. Some inventory items
require strict, detailed control techniques, while others cannot justify the cost of such systems.
Because of its practicality, the ABC inventory system is commonly used in industry. In
addition the technique is easily computerized, speeding up the analysis and lowering its cost.
The following table summarizes the use of the ABC control system.
Table 1.2
A items
Features B items C items
Level control Monitor closely & Maintain moderate control Maintain loose
maintain tight control control
Reorder Based on forecasted Based on EOQ calculations When level of
requirements & past experience inventory
Record Keep detailed records Use periodic inspections No records required
keeping of receipts and and control procedures
disbursements
Safety stock Low level of safety Moderate levels of safety High level of safety
stock stock stock
Inspection Frequent monitoring Periodic checks on changes Few checks on

frequency schedule changes in requirements requirements

Purchasing Centralized as many Combination two/more Decentralized two
supply source as possible reliable sources reliable sources
Other Method Of Analysis
VED (Vital, Essential, Desirable) Analysis
When the inventory is classified according to its criticality, i.e., according to the cost of
incurring a stock-out, the technique is called VED analysis. The V class items are vital
without which the production in an industry will immediately stop. Non-availability would
affect the performance (efficiency), but without which the system would not fail. The 'D' class
items are desirable without which the production is unaffected, but it is good if they are
available, for the state of efficiency and less fatigue. VED analysis can be used in the case of
special raw materials that are difficult to obtain.
SDE analysis
This type of analysis is useful in the study of those items, which are scarce in availability. The
'S' class items are scarce items, e.g. imported items, which are generally in short supply. The
'D' class stand for difficult items, which are available in the market but not always traceable or
immediately supplied, and 'E' class items are easily available in the market.
HML analysis
This type of analysis is similar to ABC analysis except that cost per item (per unit) is taken.
Maximum or highest (H) cost are given top priority, then M (medium cost items) and finally
L (the low cost items).
FNSD Analysis
Items are classified in the descending order of their usage (movement) value, namely 'F' class
standing for fast moving items, 'N' class for normal moving items, 'S' class for slow moving
items and 'O' class for dead items, which are transferred to disposal cell.

This method is used to combat obsolescence in all types of inventory. The analysis also helps
in arranging stocks in the stores a deciding the distribution of inventory items. The cut off
point for F, S and D items are usually in terms of the number of issues over the past year(s).
XYZ Analysis
The XYZ classification has the closing inventory as the basis of classification. Items with
high closing inventory are classified as 'X' items those with moderate closing inventory as 'Y'
items and those with low closing inventory as 'Z' items. The classification is done usually
once a year, during the annual stocktaking.
The XYZ analysis helps in identifying the items that are being stocked extensively. One can
combine ABC analysis with XYZ analysis, which helps in timely prevention of over stocking
of items. We can also combine XYZ analysis with FNSD analysis.
Activity 1.2.
1. What is difference between SDE and HML analysis?
2. Clearly distinguish ABC classification and others methods of classification of

materials (VED, SDE, HML, FNSD and XYZ).
3. Do all inventories in a warehouse have similar value in your organization?

Summary of selective Inventory management
We have described some commonly used technique of selective control. It depends upon the
situation; need and nature of the inventories carried by an organization to decide which
selective control technique must be chosen. For instance, a spares consuming organization
would rely more on VED analysis. Moreover, in many situations it is advantageous to
combine two techniques. For example, we can combine XYZ - FNSD analysis to reduce
obsolescence of stocked items.
We now summarize the above discussed selective control techniques according to their basis
of classification and chief uses.
Table 1.3
Classification
Basis of classification Main use
technique
ABC Consumption value Controlling raw material & work in

progress inventories
VED Criticality Controlling the inventory level of spare

parts
SDE Scarcity Controlling the inventory of scarce

items
HML Cost Controlling the over consumption at

departmental level
FNSD Consumption or Controlling obsolescence

movement rate
XYZ Closing inventory value Controlling over stocking and under

stocking of items

III) Classification according to Manufacturing Process

Sometimes stocks are classified into the following divisions for a manufacturing process or
production.
1. Process stock: stocks which are yet to be taken in to the manufacturing process on
production. These are subdivided into:
 Raw materials
 Bought out parts and assemblies
 Consignment stock- materials purchased but not yet received
 Reserved stock- a particular quantity set for a particular order or job
2. Intermediate Stock: parts or assemblies manufactured within the factory for use in the
final products.
3. Finished goods or products.
IV) Classification of Inventories
Inventory or stocks sometimes classified in general as follows:
a. Production inventories
b. MRO inventories- these includes Maintenance, Operating and Repair supplies or spare
parts
c. In-process inventories
d. Finished goods inventories
e. Material in transit
V) Classification by end Use
The stock items may be classified according to how they are going to be used or employed
finally. For example, in an automobile factory, grouping of stock items may first be in two
stores, i.e. production store and non production store. Further sub division of production
inventory may be done as follows:
 Production stores-Body, engine, gearbox, brakes, etc.
 Engine-Cylinder, piston assembly, ignition system, carburetor, etc.
 Ignition system-battery, ignition switch coil, complicated machinery and
equipment.

Board of
Directors
Managing
director
director of director of director of director of director of

production marketing material finance personel
managing
director
central inventory
purchasing store
reciving control
Fig.1.2. Position of Stores within Materials Management
Chapter Summary
Storekeeping is the function of receiving, storing and issuing of materials. In almost

industries, the material (raw materials, finished, components, tools--- etc) represents a very
large investment. The stores function is responsible for receipt, physical upkeep and
maintenance, and distribution of larger sums of moneys in the form of stocks. The
management of inputs and output flow will require a good deal characteristics and volume of
transaction the reporting, accounting, and verifying system should be devised. The stores
function must be managed and operated in a highly efficient way.
The main Duties and Responsibility of Store keeper are Receive all incoming materials and
see that the quantities are correct According to invoice, See that the daily Goods Receipt
Register is properly is properly maintain , Arrange for inspection of the material received and
Ensure that Goods Inward Notes are raise and distributed without delay e.t.c.

Store keeping is both a science and an art. It is a science in a sense that one can learn from
books, experience persons, the principles of and rules of good store keeping, where as it is in
that it comes only with practice.
A Good Store Keeping Principles consists of Assign a proper place of everything , Keeping
every item in it assigned place ,Maintaining adequate records but not complicated records of
item in store, Easy and prompt issues and receipt of items ,Keeping in an orderly fashion and
Providing protection against damage.
Classification of materials refers to groups of materials according to their nature in suitable
categories, i.e. classifying as consumable and tools. For instance items like soap, cotton,
lubricating oil etc. may be classified as consumable stores; all forms of tools including jigs
and fixtures may be classified as tools. There are different approaches or methods of
classifying store items. Some of the major classifications of materials are General
classification ,ABC Classification, Classification according to manufacturing process,
Classification of inventories and Classification of end use.

Chapter Two
2. Stock Receipts/Receiving Section

Learning Objectives
 After completion you should able to:
 Define stock receipt
 Identify types of stock inspection
 Understand methods of stock codification
 Understand techniques and systems of storage
 Know the records and reporting systems
2.1. Stock Receipts
The receiving section is a central place where all coming supplies are received, checked, and
inspected before storage or use. It is also called the Goods Inwards section.
Stock receipt involves all the materials and items supplied to the store whether from internal
transfer (i.e. from another part of the organization), or from external sources (i.e. delivery
from suppliers). Both must be strictly controlled to ensure stores management and smooth
operation.
The prime purpose of receiving section
 To confirm that the order has actually arrived
 To check that the shipment arrived in good condition
 To forward the shipment to its proper next destination
 To ensure the quantity ordered has been received be it storage, inspection or use.
 To ensure that proper documentation of the receipt is registered and forward to the
appropriate parties.
2.1.1. Types of Receiving Section

 Centralized Receipt: all materials are first received there, checked, inspected and
distributed to the various store along with the Goods Inwards Note.

 Semi Centralized Receipt: the records are centralized and only light materials such as
hardware, general store materials, etc are received in the receiving section, where as
heavy materials like casting, pig iron, steel etc are received and checked at the
respective stores by receiving section staff in the presence of a representative from the
stores concerned and both will signed for the correctness of the quality, weight
measurements etc.
o The objective is to save the work of transporting materials from receiving
section to each respected store but all challenge are recorded on one receiving
section and the GINs are issued there.
 Decentralized Receipt: are receiving section is attached to each store (group of
stores) on account of the large quantity of materials receiving and the wide area over
which the stores are distributed GINs are prepared separately at each receiving section.
The receiving section should be entirely separate from the actual stores or dispatched section
to void any mix-up of incoming and outgoing consignments. The advantages separating
receiving section are:
outside parties are denied access to various stores and to the workshop
Chances of items uninspected and not covered by G.I.N being taken into stock are
eliminated.
Ensure double checking on incoming supplies
Stores Receiving & Dispatch Functions

The consignee shall be responsible for receipt and documentation of all the incoming
materials from suppliers against Purchase Orders/ LOI or from other units of the Corporation.
This function comprises of
 Clearance & Dispatch Group (C&DG)
 Transit Insurance
 Transport Agency Contracts
Consignee - Stores and Transport will be the consignee for materials pertaining to works and
Stores will be the consignee for materials pertaining to Capital Works of Projects.

Transportation - Purchase orders for large number of items are placed on out-station
suppliers including on suppliers abroad. Transportation and quick and safe delivery of
materials is one of the important functions of materials management and looked after by
stores. Efficient and effective functioning of Clearance & Dispatch Group largely depends
upon selection of right mode of transportation and right carrier.
Following are some of the aspects to be considered for choosing the most economical and
effective carrier:
 Various modes of transportation available
 The carriers available
 The freight structure of various modes of transportation,.
 The type of risk in transit and the extent to which carriers are willing to accept.
 Freight structure of various commodities.
 The terminal facilities that various carriers offer.
 The facilities available with the various carriers for expediting and locating goods, which
are unduly delayed in transit.
Keeping in view the nature of materials, urgency of requirement, a suitable mode of
transportation and also a carrier is to be identified for most economical and expeditious
movement of materials from the suppliers’ works to our Stores.
Clearance and Dispatch Functions: This involves taking delivery of all incoming
consignments by rail, road, and air or personally brought by suppliers or organization’s
personnel and also arranges outward dispatches viz. materials transferred to other units of the
organization or returned to supplier for repair/rectification or replacement
Broad activities and responsibilities include:
Receipt of Purchase Orders and Amendments: A hard copy / copies of all the Purchase
Orders/LOI and also subsequent amendments are received by Divisional Engineer (Stores)
from Purchase Department of Unit and Corporate Office, which will distribute the copies of
the P.Os among Receipt Group, Custody Group and Computer. All copies of P.Os so received
shall be entered into a P.O. Register, which shall be maintained in sequence of P.Os serial

number (specimen of Register- Appendix - 1). This register shall be very useful to search for a
particular P.O. and also to keep track whether copies of all P.Os have been received.
Activity 2.1
1. What is stock receipt?
________________________________________________________________________
______________________________________________________________________
________________________________________________________________________
______________________________________________________________________
2. Explain and elaborate types of stock receipt .
________________________________________________________________________
______________________________________________________________________
________________________________________________________________________
______________________________________________________________________
Receipt of Dispatch Documents

Dispatch documents shall either be received directly from the supplier or from Accounts
Department (when negotiated through bank for advance payment in full or part depending
upon conditions of Purchase Orders/LOI)
a) Receipt of Dispatch Documents Directly from the Suppliers:
If 100% is to be released after receipt of materials, suppliers are advised through ‘Dispatch &
Invoicing Instructions’ forwarded along with Purchase Orders to send original documents
(Invoice in duplicate, packing slip, consignee copy Pre-dispatch Inspection Report, if any,
Test Certificate/ Guarantee Certificate/
Warranty Certificate, Interchangeability Certificate as per the provision of the order) to the
consignee viz. Assistant Divisional Engineer (Stores & Transport)/Divisional
Engineer (Stores). The requisite original documents shall subsequently be furnished to
Accounts Department along with copies of Stores Receiving Voucher so as to facilitate
payment to the supplier. Sometime suppliers may erroneously send the documee s to

Accounts or Purchase Department who shall immediately send these documents to Stores for
prompt collection from the carriers.
b) Receipt of Dispatch Documents from Accounts when negotiated through Bank
(i) As per ‘Dispatch & Invoicing Instructions’ suppliers are required to send one advance set
of documents to Divisional Engineer (Stores)/ Senior Accounts Officer, while original set
being handed over to the bank. All advance intimations received by this group shall be kept in
a folder, supplier-wise alphabetically- marked ‘Advance Intimations’. As and when original
documents are received from Accounts, relevant ‘advance set’ shall be removed from the
folder and attached with other documents received along with RR/PWB/LR etc. Thus at a
given time, only those intimations shall be available in the folder for which documents after
retirement from the banks have not been received. This information shall be very useful in
monitoring receipt of critically required materials, taking delivery from the carrier by
furnishing Indemnity Bond and expediting retirement of documents from the bank.
Collection of Consignments from the carriers- Road Transporters and Railways
Parcel/Goods Yard
The representative of Clearance & Dispatch Group (C&DG) shall maintain very close contact
with the road transporters and railways so that prompt intimation is received by them
regarding receipt of consignment by the carrier. Information regarding consignments which
are received by the carriers but RR/ LR are not available shall be readily available with them
so that action is taken for prompt availability documents and collection from the carrier to
minimize payment of demurrage and wharf age charges.
(a) Collection of Consignments from Road Carriers:
 Delivery of small load consignment normally is required to be taken from
transporter’s god own, unless the consignments are booked on ‘Door Delivery’ basis
 The representative of C&D Group shall visit the carrier’s godown with LRs. pending
for collection of consignments.
 While taking delivery it has to be ensured that the correct packages being handed over
by the transporter and as detailed in LR. Marking on each package to be checked very
carefully.

 If any apparent damages are noticed to the consignment or packages are delivered
short, open delivery shall be insisted upon and contents shall be checked with
reference to suppliers’ invoices and open delivery certificate is to be obtained from the
transporter indicating the condition of consignment, short delivery of packages, if any,
weight of package (s) offered for delivery and weight as per LR, individual items
details with value of items delivered damaged and/ or found short. This document is
very vital for preferring claims on the carrier, underwriters/ suppliers as the case may
be.
 The carrier upon payment of freight, demurrage, other charges, if any, shall normally
deliver consignment. Demurrage charges are known as avoidable expenses and as
such consignments shall be collected from the carrier promptly. Cordial business
relation shall be developed with road carrier so that they do not demand demurrage
and if at all demanded, only token amount is paid.
Collection of Consignment from Railways Parcel Office/ Goods Yard
- If dispatches through Railways are substantial, the representative of C&D Group shall visit
Railways parcel office/ goods yard regularly to take delivery of consignments which have
been received and RR/PWB are available.
- If the consignments are not received he shall obtain ‘Not arrived’ remark on such RR/PWB
from the Goods Clerk.
- He shall also make a note of consignments, which have been received but RR/PWB are not
available. If the consignment received are booked as ‘SELF’, and advance intimation from the
supplier is available, matter shall be pursued with Finance and Purchase to ensure faster
retirement of documents so as to minimize payment of wharfage charges. However, if the
consignments received are booked in the name of Corporation, delivery shall be obtained by
furnishing Indemnity Bond. A proper record of Indemnity Bonds shall be maintained and as
soon as RR/PWBs are received those shall be surrendered to railways and Indemnity Bond
got discharged.

- In case any wagon is placed in the Goods Yard, and there are indications that it is meant for
the Corporation, immediate arrangements shall be made for unloading so as to avoid
demurrage charges.
- In case any consignment is received in outwardly damaged condition or some packages are
received short, book delivery shall be taken and consignment left with the railways for Open
Delivery if such delivery cannot be given immediately by railways on request. Suitable
remarks to this effect must be incorporated in the Delivery Book. By taking the Book
Delivery and making payment of railways dues there shall not be any further wharfage
charges. Railway
Goods Clerk may not be authorized to give open delivery and a date is fixed when competent
person of railways shall be available for open delivery. While taking the open delivery it shall
be ensured that weightment of materials being offered for delivery is carried out to
substantiate shortages, if any. Open delivery certificate shall be obtained after opening the
packages and physical verification of items/ quantities received with reference to supplier’s
invoice, indicating details of items received short/ damaged and their value.
Receipt of Consignment brought on Door Delivery basis
- Normally full truckload consignments are booked on door delivery basis. As soon trucks
are received, arrangement shall be made for unloading
- Weighment of truckload consignment, both gross and tare weight invariably shall be carried
at weighbridge at site to work out net weight of packages. This information shall be needed to
find out any shortages in the materials so delivered and also needed to process freight
payments to the carriers.
- The representative of C&D Group shall supervise unloading.
- Wherever feasible, double handling of consignment shall be avoided, particularly in respect
bulk materials. Direct unloading of such goods shall be done at the place of storage at Store in
consultation with the custodian of the materials and in exceptional cases at the place of their
usage if user departments urgently require goods. In case goods are unloaded at user’s end,
prompt accounting documentation related to Receiving and Issuance shall be completed.

- Normally the consignment booked on Door Delivery basis accompanies the Consignee copy
of LR along with driver’s copy. Before acknowledging the receipt and handing over LR to
transporter/truck-driver, it has to be ensured that details are entered in RR/LR Register
- There may be a situation when a truckload is placed in the Stores but the consignee copy of
LR is not available either with the transporter/ truck driver or with us. Under this situation
material may be unloaded, receipt given to the transporter on driver’s copy of LR. If the
consignment is booked in the name of the Corporation, matter may be taken up with the
supplier under intimation to
Purchase and Accounts to furnish consignee copy of LR, which shall be handed over to the
carrier later. Details of LR shall be entered in the RR/LR Control Register and further action
is initiated to take the materials on charge.
- However, consignment brought on door delivery basis and booked as ‘SELF’ but consignee
copy of LR is not available with us, such consignment shall be unloaded at a place where the
contents do not mix up with other materials. Further action for accounting of consignment
shall be deferred till such time; consignee copy of LR is received after retirement of
documents from the bank. Matter shall, however, be immediately taken with Finance and
Purchase for early retirement of documents.
Responsibilities of Receipt & Dispatch (R&D) Group for Dispatches of Materials
i) Receive the materials for dispatches to outstation after getting them packed in a secured
manner to avoid damages in transit.
ii) Prepare a Stores Delivery slip (Appendix- 10) which shall indicate particular of dispatch
such as Date of dispatch, Carrier, LR No,& date, Reason for dispatch, Description and
quantity of materials, No. of packages. Apart from other endorsement, 2 copies of Store
Delivery Slip shall be sent to consignee who is required to return one copy confirming receipt
of materials in good condition.
iii) Arrange dispatch of materials through public carrier and secure both Consignor and
Consignee copies of LR (If consignment is dispatched on full truck load basis, consignee’s
copy is attached with driver’s copies of LR) which shall be entered into
RR/LR Register for Outstation Dispatches (Appendix 11)

iv) Out station dispatches can be made both on freight paid/ to be bill or to pay basis as per
the advice by the department requesting for dispatches.
v) Packaging of materials for outstation dispatches shall be witnessed by security officials.
Similarly security officials may be requested to witness loading, if verification of quantity
later at the security gate cannot be done.
vi) External Gate Passes for such dispatches shall be issued by Stores, which shall stipulate
reasons for dispatches, and also as to whether materials are being sent on returnable basis or
on non-returnable basis. A proper record of materials sent on returnable basis shall be
maintained and shall be reviewed from time to time to ensure that such materials are returned
to the unit.
2.2. Stock Inspection

Inspection means the examination of incoming consignments for quality and quantity. After
checking, the materials are inspected to ensure that they conform to the purchase order and
are of the proper quality, i.e.
(a) whether the item is the correct one,
(b) whether the dimensions are correct,
(c) Whether the condition of the item is goods or whether the items are damaged, rusty,
etc.
The inspection is particularly necessary in the case of raw materials and components which go
into the product. It is generally done by one more inspectors of the inspection departments. In
certain place these inspectors, from the members of the material department, this not
advisable, since the purpose of inspection is to check on the quality of the materials bought by
the materials department. They should therefore, be independent of the materials department.
It is also usual for goods of a special nature such as machinery, fire clay, etc., to be inspected
by the user departments as it would be uneconomical to employ inspectors with the requisite
technical knowledge for inspection of comparatively very few items.

Inspection may carry out in the receiving section or in a separate place adjacent to receiving
section. Inspection is also carry out at suppliers’ premises
i) if suppliers make it a condition
ii) if the cash has to be paid before delivery and
iii) during the course of manufacturing of certain sub-contracted parts or equipment to
ensure that manufacturing is being done according to one’s specification
Inspection can be divided into two stages

a. Pre-Dispatch Inspection
b. Post-Receipt Inspection
Types of inspection of materials depends upon various factors

 Size of the item: small, medium, large
 Nature of items that is machine parts, chemical, explosives, or material
sensitive to environmental conditions
 Cost of items
 Materials requiring special testing facilities
 Bulk materials, where any rejection of materials serious repercussion
A. Pre-Dispatch Inspection
In case of an order for plant and machinery, where the performance of the machine greatly
depends upon quality control during manufacturing and assembly, it is essential that the
inspection is carried out at various stages of the manufacturing/fabrication. Once assembled or
fabricated, there is no possibility of checking the parts, which are inside the machine. Since
both dismantling and assembly of any equipment or machine involves both cost and effort,
further checking of the internal part is discouraged once the fabrication/assembly of the
machine is complete. It is the objective of the suppliers as well the buyer that the plant and
machinery, once installed, performs without any problem. Stage inspection endures that the
quality control during manufacturing is as per relevant standards and would help in
maintaining the quality of the product.

Pre-dispatch inspection is normally done in the supplier’s works by his own staff. In case of
reputed suppliers, the buyer relies on the quality control system of the suppliers. However, in
some case the buyers ask the suppliers to submit the copies of the inspection reports for
his/her information and record.
Depending upon the criticality of the item due to its importance or high cost, the buyer may
even depute his own inspectors to the works of the suppliers, for the stage inspections or may
even hire the service of specialists from other reputed expert organizations for the purpose.
The buyer may also ask test reports of certain tests from reputing testing laboratories to ensure
that all necessary tests are carried out at the appropriate stages to maintain the ultimate quality
of the final product.
Pre-dispatch inspection is essential in cases of import of raw materials, where bulk quantity
involved. Any rejection of the materials at the destination or the need for its return from the
destination to the suppliers is result in many problems, such as loss of valuable time and
money. The buyer is very careful in such cases and definitely does not want to take any risk
on the quality of the material. He/she therefore, appoints reputed inspection agencies to
inspect the material before dispatch both for the quantity being shipped as well as for its
quality.
B. Post-Receive Inspection
Post-receive inspection is normally done at the warehouse/works of the buyers. It can be

divided in to two stages. The first stage is termed as preliminary inspection and is carried out
by the material inspector of the warehouse. The second stage is known as the final inspection
and is carried out by the representative of the user department/originating.
Inspection by material Inspector in the Warehouse
Various activities in the first stage of inspection done by the material inspection warehouse
are:
 Segregation and counting
 Unpacking, identification and visual checking
 Information to user

Inspection by user department

i. inspection of materials in main warehouse/relevant store
ii. inspection of materials taken by the user department to their workshop
All items should be accepted or rejected within seven day working of the receipt of materials.
However, certain items requires more than 7 days, before a decision to accept or reject is
taken.
Activity 2.2
1. What is stock inspection?
________________________________________________________________________
______________________________________________________________________
________________________________________________________________________
______________________________________________________________________
2. Explain types of stock inspection?
________________________________________________________________________
______________________________________________________________________
________________________________________________________________________
______________________________________________________________________
2.3. Stock Codification

Codification- is one of the functions of stores management. Codification is a process of
representing each item by a number, the digit of which indicates the group, the sub-group, the
type and the dimension of the item. Many organizations in the public and private sectors,
railways have their own system of codification, varying from eight to thirteen digits. The first
two digits represents the major groups, such as raw materials, spare parts, sub-contracted
items, hardware items, packing material, tools, oil, stationery etc. The next two digits indicate
the sub-groups, such as, ferrous, non-ferrous etc. Dimensional characteristics of length, width,
head diameter etc. constitute further three digits and the last digit is reserved for minor
variations.

Whatever may be the basis, each code should uniquely represent one item. It should be simple
and capable of being understood by all. Codification should be compact, concise, consistent
and flexible enough to accommodate new items. The groupings should be logical, holding
similar parts near to one another. Each digit must be significant enough to represent some
characteristic of the item.
Objectives of Codification
The objectives of a rationalized material coding system are:
 Bringing all items together.
 To enable putting up of any future item in its proper place.
 To classify an item according to its characteristics.
 To give a unique code number to each item to avoid duplication and ambiguity.
 To reveal excessive variety and promote standardization and variety reduction.
 To establish a common language for the identification of an item.
 To fix essential parameters for specifying an item.
 To specify item as per national and international standards.
 To enable data processing and analysis.
Advantages of Codification
As a result of rationalized codification, many firms have reduced the number of items. It
enables systematic grouping of similar items and avoids confusion caused by long description
of items since standardization of names is achieved through codification, it serves as the
starting point of simplification and standardization. It helps in avoiding duplication of items
and results in the minimization of the number of items, leading to accurate record.
Codification enables easy recognition of an item in stores, thereby reducing clerical efforts to
the minimum. If items are coded according to the sources, it is possible to bulk the items
while ordering. To maximize the aforesaid advantages, it is necessary to develop the codes as
concerned, namely, personnel from design, production, engineering, inspection, maintenance
and materials.
Names and descriptions of materials are often long and vague. In order to avoid length and
ambiguity in description and names of materials, a symbol may be assigned to each item of

material which is known as code. Codification is the procedure of systematic assignment of

symbols for each item of store. Such may be either numeric, alphabetic or a combination of
numeric and alphabetic symbols. Such codes are secret and short names of materials. When
the codes being shorter, considerable time and effort it may be saved by substitution of a code
for longer and cumbersome description.
Codification is the process of representing each item by a number or a letter or a combination
of both in the form of a stores code. Therefore, it would be useful to know the basic nature
and characteristics of all materials used in an organization and then classify them in broad
categories and then to group and sub-group them in logical progression of kinds, types and
sizes, etc.
As mentioned earlier coding can be done with the help of figures, alphabets or combinations
of both. In coding materials in a store, we first classify, groups, and sub-group them. The most
common methods to classify and code materials are by nature and use of the item.
Basic principles of coding
While assigning codes the following principles should be kept in mind;
1. Exclusive: each code number should relate to only one type of material and there
should be no duplication.
2. Brief: codes should be brief because long codes take longer to write and are prone to
error.
3. Certain: the code must identify the material without any ambiguity.
4. Elastic: the code should be such that new materials can be added easily and logically.
5. Mnemonic: as far as possible, codes should be easier to remember, such as, HCW for
Hard Copper Wire.
Purpose of codification
 For proper identification of items by all departments
 To avoid long description
 To avoid duplication stock under different description
 To enable reduction of varieties and size
 To arrange bin cards, stock control cards, accounts records etc in a uniform manner.

 To ensure that receipts and issues documents are posted in appropriate.
Types of Coding
There are different of store codes designed to various needs. These may be based upon the
types of store item and the proposed code for which the item is used or on any other
application of that item.
a. Numerical and decimal: the use of numbers to represent various items in stores is the
simplest system of codification. It is most widely used system of codification. The
numbers are assigned in such a way that number indicates the nature of the item.
Groups of numbers are assigned to items that are similar in some respect. More
numbers are to specify nature of materials and their further subdivision, shape and
size.
For example:
We can divided the stores in to the following main groups and allot number as below;
 0---Raw materials
 1---Bought out items
 2--- Tools
 3---spare parts
 4---Fixture
 5---General store
 6---Finished products
Raw materials may be further sub divided in to the following sub groups
Example:
 00---Timber
 01---Rubbers
 02---Metal
 03---Plastic
Metal can be further divided in to the following sub divisions

Example:
 020---Zinc
 021--- Lead
 022---Copper
 023---Aluminum
b. Alphabetical: In this method, each item of store may be denoted by a combination of
alphabets. As an alphabet represent the first sound of description of materials, it
becomes easy to remember the codes. The system is thus also, known as ‘Mnemonic’.
Example:
Mild Copper Bar MCB
Building Material MB
Table fan (medium size) TFMS
Mnemonic system used alone is confusing since one symbol may convey the impression of
two or more object, for example, ‘SCR’ may indicates either Screws or Screens.
c. Alpha Numeric: it is the most effective method of coding store materials and parts. It
is a combination of the letter and number system. Letters are used to indicate names of
materials and parts, and numbers are used to indicate specification (size, dimensions
or weight).
Example:
Mild Copper Bar of 6 length MCB6
Brass Strips of ¼ thickness BS14
The codes of materials should appear on all documents relating to the movement and use of
materials and should be marked against the appropriate bins.

Activity 2.3
1. Explain the importance of codification.
________________________________________________________________________
______________________________________________________________________
2. Mention down types of codifications.
_______________________________________________________________________
______________________________________________________________________
________________________________________________________________________
2.4. Storage System and Methods
Two basics system can use in physical store materials:

a. Closed store system
b. Open store system
c. Random access storage system
The application of each system depends upon the nature of production and the way in which
materials are used.
a. Closed Store System: a closed system is one in which all materials are physical store
in a closed/control area. The generally practice is to maintain physical control by
looking storage area whenever no activities. As a result no one other than the store
personnel is permitted in the storage area. Material enters and leaves the area
accompaniment to an authorized document. These systems afford maximum physical
security and ensure tight accounting controls of materials.
b. Open Storage System: it is applied in higher repetitive and mass production types of
operation exhibiting continuous and predictable demand for the system. In plant using
open storage system, no store room as such existing. Each materials in store as close to
its point of use as physical possible. The open system place little emphasis on physical
security of materials and accounting controls of materials.

c. Random Access Storage System: it is unique types of closed store system, employed
by a relatively small number of large firms. In this system no material has a fixed
storage system location. When items enter in to store room, it is store in the first
storage available bin/shelf suitable for its storage requirement. When the items
withdraw from stores the storage space is available for any other in coming item
having physical storage requirements. The main advantage of using this system is to
utilize space much more efficiently than fixed location system and the system provides
great flexibility. Its drawback is difficult to achieve tight physical control of materials.
2.5. Stores Records/Documents

A comprehensive set of documents has been developed to enable this control to be
maintained. Each of those documents has an important and specific role to play. The main
records/documents are;
1. Reorder Notification: This is prepared by stock record section and sent to purchasing,
that in retune will place an order with the appropriate supplier, after going through
purchasing cycle.
2. Purchasing copy Order: This is issued by the purchasing department and is usually a
carbon copy of what has between sent to the supplier. It will therefore, contain
information regarding of the following
 Cone no and description of the good
 Quantity ordered
 Method of delivery required delivery date
 Price
 Date of the ordered being place
3. Advice Note: This issued by the supplier contracted to supply the stock ordered by
purchasing department. It is when the goods are dispatched by the supplier and is
designed to provide the following data;
 Conformation that the order will be delivered
 Provisional delivery date and time

 Method of delivery to be employed by the supplier

 Quantity of goods that will be supplied
 The code number and description of the stock concerned.
4. Delivery Note: This document is usually supplied with the goods delivered. It stated
what the supplier has actually with deliver to the store. It must be carefully checked
against the stock unloaded, to ensure that the figures and detail on the delivery note
are accurate. It contains the following information
 Quantity
 Type
 Color
 Code
 Date
 costs
5. Carriers Consignment Note: This is used when the supplier has contracted out the
actual physical delivery of stock to an organization in business for that purpose(e.g.
railway, road transport ) such organization provide their own form and delivery note
so that, control of is deliver can be maintained and claims for non delivery properly
processed. In most cases the goods delivered will have both a supplier’s delivery note
and a carrier’s consignment note.
6. Internal Packing Note: This is used to carry out a more detail check of the stock
delivered once the parcels, boxed drums, etc have been broken down for storage. The
packing notes lists what is actually with each unit delivered? It should give specific
data about quantities, type, sizes, colors, specification.
7. Goods Inward Note (GIN): Prepared by receiving section. The Goods Inward Note is a
certificate to;
 Accounting department for payments
 Purchasing section regarding the receipt of the goods
 Store section to take the material in to storage
The information contain in Goods Inward Note

 Date of receipt _Description

 Date of GIN _ Inspection report
 Name of consignment _Signature of the checker
 Invoice number _Signature of the inspector
 Mode of transport
 Class and code number
 Quantity received, accepted, rejected
8. Daily goods receipt registered: when materials received from suppliers an entry will
be made in register called daily goods receipt register. The entry does not give full
details of materials but only summary as the GINs will give complete information.
The Purpose of this documents is
 To have a consolidating control day to day receipt
 To serve as ready reference
 To verify the dates as supplier received
 To check if GIN have been raise for incoming materials
 To see the extent of pending challenge
 To assess the total work load in the receiving section.
Activity 2.4
1. Mention and discuss storage system and methods
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
2. What are the common documents and records in store?
________________________________________________________________________
______________________________________________________________________
________________________________________________________________________

Chapter Summary
Stock receipt involves all the materials and items supplied to the store whether from
internal transfer (i.e. from another part of the organization), or from external sources (i.e.
delivery from suppliers). Both must be strictly controlled to ensure stores management and
smooth operation.
The receiving section is a central place where all coming supplies are received, checked, and
inspected before storage or use. It is also called the Goods Inwards section. Receiving section
can be Centralized Receipt, Semi Centralized Receipt, and Decentralized Receipt. The
receiving section should be entirely separate from the actual stores or dispatched section to
void any mix-up of incoming and outgoing consignments. The advantages separating
receiving section are: outside parties are denied access to various stores and to the workshop,
Chances of items uninspected and not covered by G.I.N being taken into stock are eliminated,
Ensure double checking on incoming supplies.
Stock Inspection is the examination of incoming consignments for quality and quantity. After
checking, the materials are inspected to ensure that they conform to the purchase order and
are of the proper quality, i.e. whether the item is the correct one, whether the dimensions are
correct, and whether the condition of the item is goods or whether the items are damaged,
rusty, etc.
Inspection may carry out in the receiving section or in a separate place adjacent to receiving
section. Inspection is also carry out at suppliers’ premises ;if suppliers make it a condition ,if
the cash has to be paid before delivery and during the course of manufacturing of certain sub-
contracted parts or equipment to ensure that manufacturing is being done according to one’s
specification. Inspection can be undertaken in two ways i.e. pre inspection and post
inspection.
Stock codification is one of the functions of stores management. Codification is a process of

representing each item by a number, the digit of which indicates the group, the sub-group, the

type and the dimension of the item. Codification enables systematic grouping of similar items
and avoids confusion caused by long description of items since standardization of names is
achieved through codification; it serves as the starting point of simplification and
standardization. It helps in avoiding duplication of items and results in the minimization of the
number of items, leading to accurate record. There are different of store codes designed to
various needs these are numeric and decimal, Alphabetical and Alpha Numeric.

Chapter Three
3. Issuing and Dispatching Functions

Learning Objectives
After studying this chapter you should able to understand:
 Types of Stock Issue and Procedure.
 Types of issued documents and control methods
 Roles and Objectives of Dispatching department
 The Dispatching Procedure

 The main Documents Used in dispatch
3.1. What is issuing?
Issuing a function of stories management is the process of reacting to the demands of users for
goods and services held within the store.
3.1.1. Consideration in issue of Materials
Important considerations regarding issue of materials are:

 Materials should be issued under proper authorization.
 Materials should be issued to authorize person only.
 Items to be issued as per the requirements of the users should be identified correctly.
 Quantity issued should be correct as pre issue note. It should neither be less nor more.
 Documentation relating to the issue of materials should be complete.
3.1.2. Types of Issues

Because of the size and complexity of modern business, many stores hold a great variety of
items and therefore different types of issue classification exist to cover this variety.
A. Replacement Issues: This is where an item of equipment or a supply of goods has been
broken or has broken, worn-out or obsolete. In this case the authorization for a new

issue is the exchange for old piece of equipment. The ultimate objective of this to
exchange the old one.
B. Imprested Issue: These are items that are required by the user to be constantly on
hand, and therefore, the users will need constantly to top-up his/her supply. E.g.
pharmacy drug
C. Loans Issues: These are usually tools and equipment that are required by certain
departments for special jobs. The store will lend the equipment needed. E.g. book
store, pocket library books
Such loans are controlled by means of the person borrowing the items signing out the
tools and signing them back in again in the stores.
D. Allocated Issues: Allocated issues are a means of controlling the material in the store.
Stock allocated by the production plan to a certain operation in a given
department/section. Here the production planning documents act as the means of
authorization.
E. General Issues: Items needed by various departments within the operation for the day-
to-day running of the company. Example; stationary materials
F. Capital Issues: These are the major pieces of equipment purchased and issued by the
company. These items are not held by store so that, purchasing will be buy the items
and will be issued as soon as it is delivered to the factory. It involves senior managers
at the time of issue.
G. Issues of Dangerous Materials: In cases where highly dangerous materials are being
handled, a special issue procedure has to be followed to ensure that proper precautions
are taken against possible damage. This is usually involves the senior stock keeper
becoming involved in the actual process.
3.1.3. Issues Procedures

1. Need: the user has to decide what he/she needs and the type, quality, specification and
amount involved.

2. Completion of issue note: the issue documents have to be properly completed, giving
fullest possible details of the good required.
3. Authorization: the requisitioned must locate then appropriate member of staff
designed to authorized issues from stock and seek his/ser approval and signature.
4. Requisitions check: the person designed to authorize the given issuer of stock will be
presented to the stores for delivery. Stores are obliged study very carefully the type
and details of the issue to ensure that demands are real and that the limits imposed by
the organization are kept.
5. Presentation to store: once the issue note has been checked and authorized it will be
presented to the stores for delivery. Store is obliged to check carefully all the data
contained and verify the reliability of the authorization given.
6. Identification: stores will them identify the items usually the code number or
reference by which the items has been classified.
7. Selection: once the item required has been identified it can be selected from the store.
The methods of selection employed will depend upon the form of stores organization
and the types of goods required.
a. Sectional selection; each member of the stores team is made responsible for
selection and issue of certain items from certain sections of the store.
Advantage: development of detail knowledge of particular sections of the store.
Disadvantage: unequal work load distribution
b. Flexibility selection; each member of the item stores team select and issue any
item
Advantage: efficient work distribution and more effective use of staff resources
Disadvantage: they do not develop details knowledge
8. Issue of stock: once the item has been selected, delivery or collection can takers place.
9. Cost allocation: every item used in the running of the operation has to be cost against
a certain batch of production or against a department’s budget to ensure that the
costing department will be able to allocate the material costs to each stage of the
operation.

10. Notification of stock record and stock control: it is important that, once the materials
have been issued both stock records and stock control are advice in writing. This will
ensure that all stock records are updated and that are an accurate picture of the total
stock situation can be maintained.
Activity 3.1
1. List down types of stock issue.
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________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
2. Mention down stock issuing procedure.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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3.1.4. Control of Stock Issues

Stock represents a great deal of the organization money are resources, therefore control of the
issue of materials is vital.
Method of Control
The basic principle behind the control of the stock issue is that of authorization that to say a
system or procedure that will ensure that activities within the operation. Authorization of
issues can be bases on several systems. Some of the systems of control are stated below:
a. Financial limits: this is where the stores is given a list of persons, each of whom is
allowed to request stock for stores up to a given value limits. This system is not very
common and does have draw back as follow.
 It means keeping the stores up to date on the value of the stock involved

 It involves the work of updating the list of authorized persons and their finical
limits.
 It does not always prevent misuse of stock
b. Position within the organization: this is where member of the staff are able to request
stock on the basis of their position within the company.
c. Function within the organization.
d. Free Issues: many firms have found that it is more control effective to have less
control of those very small and inexpensive items of stock and concentrate on the
more valuable items in the store.
3.2. Dispatch of Stock
Dispatch of stock refers to items being selected from stock and then marshaled, documented,
loaded and subsequently delivered to their given destination.
These destination can includes the following
 Customers
 Suppliers
 Other departments in the organization
 Inspectors
 Export agents
Types of items to be dispatched

 Finished stock
 Repairs
 Returns
 Transfers
 To be inspected
3.2.2. Dispatched Documents

a. Sales Advise Note: when items are dispatched to customers the issue or order will be
made against a copy of the sales order provided by the customer. Information contains

- Items involved and amount ordered

- Code numbered
- Destination
- Loading dock number
- Customer name and address
b. Return- to-supplier Note: This document is employed when items are to be sent to
suppliers. For the following reasons:
 Damage
 Non-usage/surplus
 Sales/return agreements
 Faults supplier send wrong materials
A copy of the return to supplier note will be held by stores and a further copy will be sent to
purchasing as a permanent recorded of the return.
c. Internal Transfer Note: employed when goods are being transferred from one part of
the operation to another usually in a different part of the organization, but all within
the same company.
d. Loading Sheet (carrier consignment): usually prepared by transportation department
which is responsible for the actual physical delivery of the items involved, by
whatever method or methods the organization employs.
Treatment of Materials received from User Department and sent for repair. Such consignment
received after repair shall be entered in Materials Inward Register (MIR) and shall be handed
over to the user department after obtaining acknowledgement in remarks column of MIR.
Two copies of unloading report shall be furnished to user department who shall return one
copy confirming receipt of consignment/materials. No SRV is required for such
consignments.
Issue of Urgently Required Materials from Receipt & Dispatch Section. In case certain items
are critically required, those can either be unloaded at user’s workplace or got issued from
Receipt Section after necessary inspection. Person working in Receipt Section shall fill in the

quantity issued’ column of Stores Issue Voucher (SIV) and sign in relevant column; ‘Issued
by’ but shall not allot control number to such SIVs.
Such SIVs shall be sent to Custody along with user’s and balance materials if any which shall
be allotted a control number by custodian, posted in stock records and distributed along with
other documents. Based on the acknowledgement of the user department on unloading report
and SIV for the quantity directly taken by them, SRV can be generated and accounted by the
custodian.
Regularization of Emergency materials collected from supplier by User Departments :-
Normally the materials from suppliers shall be received by Stores Department. However, due
to urgency of requirement, material may also be collected by user departments who shall hand
over the material to C&D Group for necessary completion of receiving and proper
accounting.
In exceptional cases of utmost urgency, materials so collected from supplier may directly be
taken to workplace and consumed/utilized. It is to be ensured that the material (s) so collected
from the supplier is/ are checked by the security personnel and enter in the Incoming Material
Register (serial number marked on the back of Invoice/ Challan and signed by the duty
officer. However to regularize the receipt, supplier’s Invoice/ Challan/ Packing Slip along
with Stores Requisition cum Issue Voucher for the related items shall be handed over to R&D
Group. The urgency of requirement shall be confirmed by the Superintending Engineer/ HOD
of concerned department.
Receipts and Issues of Materials by Custody Group. This function involves:
I) Receipt of materials from Receiving and Dispatch Group
II) Receipt of surplus materials and scrap arising from user departments
III) Issue of materials
The major functions are:
(a) Receive the consignments/materials from R&D Group along with Unloading Report in
duplicate.
(b) Ensure that all the relevant documents for preparing the Stores Receiving Voucher are
available.

(c) Inform indenting department regarding arrival of consignment and also visit Stores for
quality check.
(d) Undertake bulk breaking of packages and checking the content with reference to suppliers
invoices/packing slips
(e) Arrange inspection of materials
(f) Prepare Stores-Inspection-cum-Receiving Vouchers (SRVs)
(g) To prepare Shortages, Damages and Rejection Report and initiate action for claims on
carriers/insurance/suppliers. Notify details of rejections to supplier.
Activity 3.2
1. Discuss the objective of dispatching stock.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
2. Mention down the main documents used in dispatching a stock.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
3. List down a series of procedures in dispatching a stock.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Chapter Summary
Issuing a function of stories management is the process of reacting to the demands of users for
goods and services held within the store.

Stock represents a great deal of the organization money are resources, therefore control of the
issue of materials is vital. The basic principle behind the control of the stock issue is that of
authorization that to say a system or procedure that will ensure that activities within the
operation. Authorization of issues can be bases on several systems. Some of the systems to
control the stock issue are financial limit, position within the organization, functions within
the organization and free issues.
Dispatch of stock refers to items being selected from stock and then marshaled, documented,
loaded and subsequently delivered to their given destination. Types of items to be dispatched
can be finished stock, repairs, returns, transfers and items to be inspected. In dispatching
items documentation and recording is one of the vital tasks. The main documents employed in
dispatching items are sales advice note, return- to-supplier note, and internal transfer note and
loading sheet (carrier consignment).

Chapter Four
4. Stores Accounting & Physical Stock-taking (Stock

verification)
Learning objectives
After completion of this chapter students should able to Understand:

 Store accounting techniques.
 Store verification approaches
 Store taking systems and techniques
 Causes of Stock discrepancies and detection mechanism
4.1. Stores Accounting
Stores records shall be maintained to show particulars of receipt, issue and balances of each
item in stock at a given time. The following shall be some of the reasons, apart from basic
need of accounting, for maintaining stock records:
o To know stock of any item in stores without resorting to physical counting.
o To establish link between physical stock and Stores Account Records (Priced Stores
Ledger maintained by Accounts Department)
o To facilitate materials planning and provisioning.
o Supply information for stocktaking.
o To provide information to store- personnel regarding location of items.
o Serve the purpose of price list as purchase prices and sources of supply are entered in
provisioning card (History Card).
4.2. Hand-Posted Stock-Recording System
Stock- Ledgers
These shall be in the form of registers having page number and indexing system. Due to their
inherit limitation, this type of record keeping shall be continued in small power station where

range of items is not very large. Once the codification scheme is implemented, record keeping
in the form of ledger becomes difficult, as ledger folio may not be in the order of sequence of
codes. New code may keep on adding on days to day basis. The stock record maintained
through Stock- Ledgers can only meet the accounting requirement and cannot be used as
readily available data for inventory control.
Loose Leaf Books

These shall be loose sheets filed in binder specially made for this purpose and mostly
maintained by Accounts for price stores ledgers and with modification in the size can also be
used for recording of stores transaction. Fresh cards can be added anywhere in between
without disturbing remaining cards, most advantageous for security of records and easy to
post them. Fresh cards can be added anywhere in between without disturbing remaining
cards. In this system also the records cannot readily be used for inventory management
although cards can be arranged in the binder in the order of sequence of codes.
Visible Kardex Cabinet
These are widely used in stores records in medium size and large stores. In the cabinet cards
are held in hinged folders set in metal trays, which fit into cabinet designed on to desk. The
cards are so arranged that although they overlap, a space at bottom of each one is always
visible and usually show the brief description of item, code number, part number, unit of
measurement and various control level. Kardex Stock cards (Appendix 29) apart from the
above information which is visible, provides details of various quantity of an item received
from the suppliers i.e. SRV No. & date, quantity and name of supplier, details of issue i.e.
SIV No. & date, quantity and name of indenter and balance available in stock. On the top
portion of the stock card there shall be provision of description of item, Unit of measurement,
item Code No., Part No., if any, various inventory control levels if item is a stock item i.e. Re-
order Level, Reorder Quantity and Minimum Stock.
The stock Card in the Kardex cabinet is also known as bottom card as it is placed on the
bottom. In the Kardex cabinet there is always provision for putting another card on the top
which is known as Provisioning Card (History Card) and provides details needed for the

material planning i.e. Description of item, Unit of Measurement, Item Code, Item Part No. if
any, various inventory level as above, Purchase Requisition No. & date, Quantity,
Requisitioned, P.O. reference i.e. name of supplier, Quantity, Unit rate, Quantity received
against the order, Quantity outstanding against the order. There shall also be provision in the
Provisioning card to indicate monthly and yearly consumption (details for the current and last
two financial years).
Each custodian shall have Kardex pertaining to his group and ensure
a) Day to day posting of basic stores documents i.e. Stores Receiving Voucher, Stores
Issue Voucher, Stores Return Note, Stores Transfer Note, Adjustment Vouchers pertaining to
stock-taking etc. shall be done in the stock card (bottom card) and
b) Recording of details of Purchase Requisition, P.O. reference, Source of Supply and
SRVs. shall be done in the provisioning card (Top Card). In addition data of consumption on
monthly basis is recorded in the relevant column. Whereas details at (a) shall meet the
accounting requirement of Stores and information at (b) shall be used for inventory control
and determining optimum levels of stock, meeting both financial and operating requirements
Normally receipts are posted in Kardex with red ink and issues with blue ink. “Kardex” is
kept at the respective Bins of all indoor stores material and is called the Bin Card. “Kardex”
for all outdoor stores material is maintained at the respective section offices of the custodians.
History Cards are also maintained at the respective Section Offices of the Custodians.
Computerized/online system of Stores Accounting:
Even after implementation of on-line system of Stores Accounting, it shall be advisable to
continue with the manual system of Kardex posting for few years until the on-line system is
fully stabilized.
Priced Stores Ledger
Store stock records shall reflect quantitative data i.e. quantity received in stores, quantity
issued and quantity available in stock at a given point of time. Identical records are also
maintained by Accounts but with additional information of value of each transaction and
value of quantity available in ledger and that is why it is called Priced Store Ledger (PSL). In
order to enable Accounts to update PSL copies of all basic store documents i.e. Stores

Receiving Voucher, Stores Issue Voucher, Store Return Note, Store Transfer Note,
Adjustment Voucher shall invariably be furnished to them. In order to ensure that no
document is missing with Accounts,
Stores shall furnish on the beginning of the month last control number on the last day of the
month for above documents. Accounts Department after reconciling the data at their end shall
furnish to Stores details of any missing documents. It is the responsibility Stores to provide
missing documents so as to enable Accounts to complete PSL for the month. In order to
reconcile both the records on day-to-day basis, provision is made in all the documents to
indicate balance before posting of any transaction. If this balance does not tally with Finance
data, it is an indication that there is an error either in Accounts data or the data of Stores. The
next logical step in the process shall be the reconciliation of both the records and rectification
of error (s) so that on a given day balances in both the records become identical.
4.3. Store Verification
Store verification is the process of physically counting, measuring or weighting the entire range
of items in the stores and recording the results in a systematic manner. In other words, it is also
means testing or checking the stores records with the actual items stocked in store. This is as
certain any discrepancy of actual store when compared with record.
Discrepancy is any deviation in the quantity and quality of the materials received and ordered. Or
it is any difference between the actual stock and the records of the items in stock.
4.4 Stocking taking
Stocktaking or physical inventory is the process of counting, weighting or otherwise

measuring all items in stock and recording the results.
Activity 4.1.
1. People count and check their cash properly, but they are not applying the same
practice for materials in a store. Why?

Stock represents cash and, invariably, cash is looked after very carefully. A cashier is
appointed to control it: it is locked up in safes when not in use. The cash office is fitted with a
counter and grille to make sure that no one other than the cashier's staff has access to the
money. Every time cash is received on it is counted, and the balance on hand is checked at
frequent intervals. Cashbooks are kept in detail to record all transactions and, if any of the
checks made discloses a discrepancy, the most searching inquires are pursued to find
explanation. Cash is regarded as so important that, in the event of any substantial deficiency
arising, it is normal to call in the police.
Now since stock is equivalent to cash, it follows that it should be carefully protected, counted
and checked in a similar way, but it is not unusual to see organizations where the
arrangements of stock items display a looseness' and lack of system which would be tolerated
in the cash office, in spite of the fact that the value of stock is frequently very much greater
than that of cash held.
Stock taking, involves many valuable and expensive man hours to arrange and carryout, plus
a great deal of management time needed to investigate the almost inevitable list of
discrepancies. However, the cost and effort are more than justified by the following benefits:
a) Verification and accuracy of stock record needs: stock record and stock control
systems will be tested. Verification by physical counts will act as a form of
performance check on these systems and adjustments need can be made.
b) Computerized recording systems (if any) can be verified. Computers are only as the
data supplied to them, so, data being supplied from stock records and stock control
must be accurate and relevant.
c) Supports the value of stock shown in the balance sheet by physical verification:
financial reports (including the balance sheet) produced by the organization's auditors
will demand some form of physical stock verification to back up the value of stock
shown within the balance sheet. Stock valuations which are not backed up by a

physical count have little relevance to the critical auditors and the organization's
accountants.
d) Discloses the possibility of fraud, theft or loss: the security aspect of stores
management demands that regular and physical checks be made to ensure that any
possible theft or fraud is quickly detected and investigations carried out.
e) Reveals any weaknesses in the system for the custody and control of stock:
stocktaking is an indicator of overall stores efficiency and management control. The
number and size of stock taking discrepancies is a good indication of efficiency. A
high incidence of stock discrepancies usually warrants a close look at the personnel
and systems involved.
f) Accurate stock levels shown within the stock records system backed up by a regular
physical count will ensure that all requirements of the user departments are covered by
existing stock levels and will be issued promptly and efficiently. This avoids the
common situation of stock shown in the records system not being physically present.
Activity 4.2
1. Explain methods of store accounting?
2. Distinguish stock taking and verification.
Methods of stocktaking
Stock taking is the works of finding out by stores staff the physical balance or ground balance
of the various items by means of counting weighing, measuring or estimating.

Stock taking enables to know whether there are any discrepancies in the postings; whether
any pilferage is taking place; and whether the materials are in good condition. It also helps
the preparation of the final inventory for balance sheet purpose. Stock taking methods are
mainly:
 Spot checking
 Periodic stock taking
 Annual stock taking
 Continuous stock taking
a) Spot-checking: this is used in connection with the security and anti-theft aspect of stores
management. Spot checks are designed to verify the stock held, without a prior warning,
which could provide time for stock to be replaced illegally. The system also acts as a deterrent
against those who contemplate theft, knowing that sudden check could heralds an
investigation.
To get the maximum benefit from the labor involved, spot-checked should be mainly, but not
entirely, confined to stock items of high value, and it may be worthwhile to check the major
items several times in the course of the year.
Blind stock taking: This is the name given to the system where by the person taking stock is
given no prior information about the vocabulary numbers, descriptions, stock record balances
or locations of the items he/she is to check, and is not allowed access to stock record cards or
bin card. The theory is that the check will be more reliable as the stock taker has no
knowledge of what is supposed to be in stock.
He/she has to locate and identify stores for himself, he is obliged to count every item, and
he/she is not open to any temptation to skimp his work by accepting identifications or
quantities as appearing on the stoke record cards.
This system is laborious and slow, it requires more staff and, unless the personnel concerned
are experienced and have a good knowledge of the physical characteristics of the stock held,
errors are likely to arise because of faulty identification.

A modification of blind stock taking procedure is to provide the stock taker with locations and
identifications, but to withhold from him the quantity balance on the stock records. This is a
reasonable compromise and speeds up the work substantially. It must be said, however if a
major stock taking operation is to be done in a short space of time, the quickest method is to
give the stock taker all available information including quantity balances on stock records.
This assumes, of course, that he is a conscientious and trust worthy employee.
This would have three main advantages:
 Where a stock taker finds a major discrepancy on his first physical count, he/she
can recheck straight away.
 Where he finds trifling discrepancy, he can ignore it an avoid unnecessary

adjustments and,
 It simplifies clerical work where the stock agrees with the card balance.
b) Periodical Stock Taking: Periodical stock taking is quarterly or half-yearly checking of the
entire stock in one or two days. This is applied in places where the stock comprises a few but
expensive items. The method followed is similar to the annual stock taking, i.e., physical
stock of various items is recorded on inventory sheets or inventory card and then compared
with the bin card balance. While inexpensive items may be checked once a year, expensive
and attractive items should be checked three or four times a year. The physical balance
obtained at the end of the financial year will form the inventory for final accounts.
c) Annual stock taking: by this method, the whole of stock is covered at the same time at the
end of given period, usually the end of the financial year. Theoretically stock should be taken
at the close of business on the balance sheet date, but in a large concern it may be quite
impossible to do all the work in one day, and the operation has to be extended over several
days. The stocking need not be done only once a year; it may be carried out as often as seems
desirable.

For a satisfactory stocktaking a good deal of preparation is necessary. First of all, a program
should be drawn up and agreed with all concerned, including the finance department and the
auditors; secondly, stock taking sheets or cards have to be prepared in advance; thirdly, all
personnel concerned must be instructed of their duties. The arrangements made should deal
with all aspects of the job and, in particular, the following points:
 Appoint one person to control the whole operation.
 While stocktaking is in progress, do not open the stores houses for normal business.
 After the end of the working day before the operation begins, no more issues should
be made and no receipts recorded until the stock taking is complete. The numbers of
the last receipt and issue vouchers should be noted and all documents up to and
including these number posted to the records. At this point all the records can be ruled
off and no further postings are made until the results of the stock taking have been
entered.
 Take all normal stock including packages, scrap, residues, items on loan and goods
under inspection.
 Have stock taking sheets under the control of one individual, consecutively numbered
and issued to the staff on duty as required. No duplicates should be allowed and, at the
end of the job, all stock taking sheets must be accounted for.
 Record separately damaged, deteriorated or used items
 Make each person taking stock responsible for a particular section or clearly defined
area of the store house of stock yard, and record everything that is to be found in that
area. Stock takers should proceed in an orderly manner, and mark each bin or as it is
dealt with to avoid the chance of checking any item twice, and to ensure that nothing
is missed.
 Any items held which are not the properties of the business ought to be marked or
labeled in advance.

 List separately any goods, which have been received by not yet taken on charge (eg.
still under inspection).
 Special arrangements must be made to include in the total list of stock all items
belonging to the business, which are not on the premises at the time of checking. Their
concerns free-issue stocks in the hands of suppliers, goods sent out for repair or
processing, or stocks at outlying operational sites. It is usual to write to the holders of
such stock to obtain written confirmation that these items are in their possession.
 Return to store all items issued on loan either internally or externally before the
stocktaking begins.
 Show the method of check i.e. count, weight, measurement or estimation on the stock
sheet for each item.
 Record quantities in terms of the normal unit of issue for the stock concerned. This
can be ensured by inserting the appropriate unit of issue on the stock sheets before
distribution.
 The method of pricing should be known and if possible, it is desirable to enter all
prices in terms of units of issue on the stock sheets in advance.
 Where several widely dispersed stockholding points exist, stores in transit at the date
of stocktaking must be taken into account.
Activity 4.3
1. What is the difference between spot and periodic spot checking?
2. What is the difference between annual and periodic stock taking?

Stock sheets
The following is typical of the information which should appear on the sheets or cards
used for stock taking:
i. Serial number of stock sheet

ii. Date of stock taking
iii. Location
iv. Vocabulary number
v. Description
vi. Unit of issue
vii. Quantity of stock found
viii. Price per unit of issue
ix. Value of stock found
x. Stock taker's signature
xi. Remarks column for comments about conditions of stock or any other special
notes.
When the physical aspect of the work has been completed, all stock sheets should be
collected and arranged in classification order, the value of each entry extended and a total
shown. By adding up these totals the value of stock in each classification can be obtained.
The sum of these classification totals will give the grand total value of stock on hand as
verified by physical examination.
Precautions must be taken to make sure that all stock sheets are returned and that the
arithmetic is checked. Where stock records are kept, the next step is to compare the
individual entries on the stock sheets with the appropriate record cards and they enter the
actual quantity found at the stock taking date on the records. where this quantity does not
agree with the balance shown on the record card, two points would be noted:
a) The physical stock-taking figure is the factual one and, therefore, takes priority and the
balance on the card must be amended.

b) Major discrepancies require investigation to discover, if possible, why they have

arisen. All established surplus and deficiencies should be valued and written on or
written off respectively to ensure that the balance on the control accounts are adjusted
to agree with the total value of stock verified by the physical stock taking.
The periodic stock taking has advantages such as, the sock-taking is usually carried over on a
non-working day (as the store must be closed during a count) and therefore the stock checkers
have item to count carefully and check discrepancies. A complete stock enables discrepancies
which are brought to light to be investigated and, accurate stock evaluation figures can be
provided for the annual balance sheet and accounts.
However, the system has certain limitations such as, the stores must be completely closed to
ensure and accurate count. Besides, it is very costly and involves a great number of staff from
both inside and outside the stores. Over time for weekends and working days can be very
expensive.
d) Continuous stock taking
This is the method where by stock is taken continuously throughout the year in accordance
with a predetermined program so that each item is physically verified at least once in the
course for the year or more frequently if required. This can only be done if complete stock
records are kept showing receipts, issues and balances on hand (i.e. if there is a perpetual
inventory). The program should be so designed that a certain number of stock items are taken
on every working days. It may be thought necessary to certain valuable or fast moving stocks
examined more frequently than other items. It is also wise to arrange that the operation is
scheduled to a month or so before the end of the financial year so that, if work is delayed
owing to unforeseen circumstances, there is time in hand to complete it before the year end.
The method of physical check are the same as those employed for periodic stock taking, buy
there are significant differences in other respects as follows:
i. There is no need to close down the stores or the works which stocktaking is in
progress.

ii. The normal positing for receipts and issues on stock records can continue without
interruption.
iii. The work can be done by a few specially appointed, experienced and trained stock
takers completely independent of store keeping staff.
iv. Stock taking results may be entered on the stock records from day to day as they
arise, and any discrepancies disclosed can be thoroughly investigated in detail.
This is an important advantage, because one of the main weaknesses of the
periodic stock taking method is that all the discrepancies are declared at once, and
time to deal with them properly is necessarily limited.
v. Assuming that the continuous program of stock taking has been satisfactorily
completed according to plan, the balances on the stock control accounts can be
accepted for balance sheet purpose without any special year end physical check,
and there need be no delay in the preparation of the final accounts, as far as stock
is concerned.
Team work: It is common practice for stock taking to be done by teams of two people for
the following reasons:
 Where quantities are not large, the counting or weighing can be done by one
person and the clerical work by the other.
 Where large items have to be measured or weighed, two persons can usually
operate more satisfactorily than one.
 Where two persons are concerned, they will to some extent check each other's
work, thus minimizing errors.
In team work two stock takers working independently of each other but counting the same
stock. This method is most accurate, as it provides an instant double check for the stock
takers who can compare each section counted to verify each other's count.

Stock taking by storekeepers
Under normal circumstance the storekeeper should not be involved in the actual stock
taking. However, it is advisable to enlist the help of sore keepers in the process of stock
taking. Because of their knowledge of stocks and where they are kept, they are able to find
and identify items quickly. The ideal team (discussed above) is a storekeeper and another
person who is not storehouse staff, thus combining speed of operation with independence
of check.
Occasionally, store keepers are required to take stock of their own stores for balance sheet
purposes without outside assistance or supervision, but this practice is not recommended.
To make a storekeeper responsible for his own stock taking not only express him to the
temptation to conceal genuine discrepancies to avoid criticism of his work, but also
provides opportunities for deliberate fraud. It is much more satisfactory to have the stock
taking done by full-time stock takers, internal audit, or finance department staff, or some
other independent persons.
To avoid the need for counting individually large numbers of small items, such as nuts
and bolts store keeper should count using scales/cases; it is easy to see that large quantities
can be checked quickly in his way.
For some bulky item such as solid fuel, sand, cement, gravel, etc.. Weighing is out of the
question because of the time and expense involved, and exact measurement may also be
impracticable, estimation can be resorted to with a suitably qualified technical person.
It should be noted that it is advisable to conduct stock taking by the time to reorder level of
the item is reached because by this time there will be less items to be checked and hence
we can save time and money.
Finally, the actual stock taking procedure employed will depend upon several important
factors, including the size of the operation involved, the extent of stock variation the size of
the store, the staff and resources available, and the quality and reputation of the stock takers
involved.

4.5. Stock Discrepancies
When the amount of stock found by physical examination fails to agree with the balance on
the stock records, a discrepancy exists. If the stock found exceeds the recorded figure there is
a surplus and, conversely, if the physical stock is less than the book figure, there is a
deficiency. There are three main classifications for stock discrepancies. Each classification
denotes the amount of time and management energy spent in isolating the cause of the
discrepancies and the steps needed to be taken to prevent a second incident. The classification
are:
a) Minor discrepancies: this is where the variation between calculated and physical stock is
very small compared with the overall quantities involved. In this case management would
not waste time and resources on any attempt to investigate such a minor discrepancy.
b) Major discrepancies: this occurs when very large and valuable variation between
calculated and physical stock is detected. In such cases, because of the stores
accountability and responsibility for all stock held, a complete investigation into the
causes of the discrepancies must be carried out.
c) Operation discrepancies: this is where, although the amount of variation involved is very
small, the importance of the items involved in terms of the continued operation of the
organization is so vital that a major investigation may have to be carried out to determine
the fault and ensure that stocks of the vital material are secured and accurate.
Stock takers should not declare a discrepancy on any item without first giving the store
keeper concerned the opportunity of investigation because:
 There may be duplicated locations of which the checkers are not aware, but the store
keeper should know of the item.
 It can be expected that the store keeper has a better practical knowledge of his stock
than anyone else, and he may be able to correct errors on the part of the stock taker,
particularly errors on the part of the stock takers, particularly errors of identification.

 It gives the store keeper an opportunity to explain or correct the difference if he/she
can, and ensures that he/she is aware of discrepancies which may reflect upon the
performance of his/her duties.
 When the storekeeper has been called in and fails to explain a difference, he should
sign the stock sheet to indicate his/her agreement that the discrepancy is genuine.
Causes of stock discrepancies
Stock discrepancies are accounted for by one or of the causes listed below:
a) Original incorrect stocktaking
b) Mathematical errors within the stock record card may produce an incorrect calculated
stock for comparison.
c) Units of issue in a large stocktaking can become confused or changed without

notification to the stock takers, and therefore a miscount will occur.
d) Misplacement of stock into the wrong shelf, cupboard, bin, etc, can result in stock being
counted by recorded against the wrong stock count sheet.
e) The basic stores documents (issue notes, delivery notes, and transfer notes) that carry
the data needed to adjust stock records and stock control systems may become lost or
incorrectly entered.
f) Stocktaking adjustments from previous tock takes can influence the accuracy of the
current stock, if the stock discrepancies were incorrectly written off as lost, only to
become a surplus in the current stock taking.
g) Stock taken form stores without proper documentation for notification to the stores will
result in stock deficiencies.
h) Unreported damage or deterioration of stock.
i) Theft or fraud.

Investigation of stock discrepancies

Once the stock taker and the storekeeper have agreed that a discrepancy exists, the procedure
of investigation depends upon the nature and value of the discrepancy. Large amount are more
worthwhile investigating than small sums; more concern is felt about deficiencies than about
surpluses and, where discrepancies may have arisen through bulk (making a large number of
small issues over a period from a bulk stock, especially by weight). They are not perhaps
thought worthy of any detailed inquiry. The degree of investigation is, therefore, a matter of
judgment in the circumstances of each case. Generally, the following list of steps should be
considered in the investigation process bearing the above-discussed points in mind.
 Examine the record card since the date of the last check to make sure that there are no
arithmetical errors or obvious omissions or duplications in posting.
 See that there has been no confusion over units of issue.
 Examine stores kept in neighboring locations to see if a balancing discrepancy exists on

another item.
 Check the basic documents (receipt, issue, transfer, return to store notes, etc) for any
exceptionally large or apparently unusual transactions.
 Have the physical stock taking verified by an independent senior official.
 Interrogate the storekeeper to find out if he/she has any explanation or suspicions as to
how the discrepancy has arisen.
 Examine the results of the last stocktaking to see whether there was a discrepancy on that
occasion or not. In odd causes it may be found that a deficiency at one stocktaking is
followed by a surplus on the next, and this may be because the first check was inaccurate.
 Make inquires of user departments in case there may have been issues from or returns to
store without documentation outside normal working hours.
 In serious cases, where theft or fraud is suspected, call in the police.

 Where necessary, review and tighten up physical security measures and documentary
procedures. After investigation, both stock records and accounts require adjustments in
respect of declared discrepancies. This may be done direct from stock sheets or by a
special discrepancy report form, listing all the items concerned, showing vocabulary
number, description, unit of issue, quantity as per stock record, quantity found on physical
check, discrepancy showing surpluses and deficiencies separately, unit price and value.
The adjustment of stock cannot be made without the authorization of the store’s manager or a
senior member of the management team. Obviously, only the most high-ranking members of
staff should be able to write off valuable stock, in order to avoid possible fraud.
Activity 4.4
1. What are the expected causes of stock variation in your organization?
__________________________________________________________________________
__________________________________________________________________________
________________________________________________________________________
2. What are the measures taken to minimize future stock discrepancies?
___________________________________________________________________________
___________________________________________________________________________
______________________________________________________________________
3. In what conditions annual stock taking differ from continuous stock taking?
___________________________________________________________________________
___________________________________________________________________________
______________________________________________________________________
Stock Obsolescence and redundancy
Stock, which is described as obsolete, is that which no longer has any use or value to the
organization that holds the stock.

There are mainly four stages in this respect:
a) Obsolescent
b) Obsolete
c) Redundant
d) Scrap
Obsolescent: The term obsolescent is used to describe the stock that will soon be of no use or
value to the organization that has it in stock. This usually happens because of change in the
method of production or technological change that means, for a period of time, the
organization will have to use two lines of stock, the new line being gradually phased in as the
old is phased out.
Obsolete: this is the next stage of the process, when the stock completely becomes worthless
to the organization. This is not to say that another organization which has not adopted the
changes which made the stock obsolete may not be interested in purchasing the stock for its
own use. However, in most cases, such changes reflect a major alternation in methods or
materials by an industry, and companies engaged in that industry change very quickly over
the new material and therefore the market for the old stock is greatly reduced.
Redundant: this is when the stock in question is completely useless to both its owner and
other organizations.
Scrap: at this stage, the stock is sold off for the value of the materials it is produced form
rather than any value in its own right.
Causes of obsolete stock
Several factors can cause stock to become obsolete and most of these are out side the control
of the organization itself. It is inevitable that, in a highly advanced technological society,
obsolescence will occur; this is added to the problems of changing consumer demands and
tastes that can lead to stocks becoming obsolete in a relatively short period of time. More
specifically the factors are:

 Technological changes
 Changes in customer demand: there are several factors that can cause a change in
customer demand such as actions of major competitors (price, quality, and advertisement),
changes in fashions and trends, and changes in the customers' own production system and
methods.
 Alternations on the part of suppliers; in some case a supplier may decide to halt the
production of an item, which the organization has incorporated into its original design. If
this halt of production is very sudden, then any part-finished work or work in progress
held in stock could be in danger, unless a suitable alternative supply can be located.
It is vital that stores management takes steps to minimize the effect of stock becoming
obsolete and redundant. Stock represents the organization's money and therefore must not be
wasted as result of excess redundant stock.
The store manager can reduce the amount of stock wasted in various ways such as:
a. Ensuring that working stocks are kept at a level low enough to reduce the risk of
obsolescence, if some changes come about.
b. Constantly reviewing stock movement frequencies (via the stock record system). A
falling rate of usage in certain items could indicate that they have been superseded by
another item held in stock.
c. Being aware of changes in techniques and demands within the industry. This helps the
stores manger to forecast the useful life cycle of stock held, and will forewarn him/her
or major changes and other implications.
d. Maintaining communications between stores and the other major departments

involved. The relevant departments must know all changes in sales, designs, method

and operations and, stores must ensure that they are kept informed of all developments
that could affect the life cycle of the stocks held.
A break down in these channels of communications will lead to large and expensive
amounts of stock becoming scrap. Maintaining special contact between stores and
purchasing to ensure that changes communicated to purchasing, in terms of new orders,
are passed on to the stores.
e) Making arrangements to dispose of obsolete stock immediately the decision is made to

declare the stock obsolete. This will enable the stock to be sold off at a reduced price, but
with some return. Delay will reduce the salability of the stock dramatically and therefore
the price and return will automatically falls.
Wastage of stock occurs not only because of obsolescence but also due to deterioration.
Deterioration means that, items are physically damaged or spoiled because of the
following reasons:
i. The inherent nature of the material is such that it deteriorates in the course of time
i.e. the shelf life of the item may be limited.
ii. Inadequate storage conditions.
iii. Faulty or careless handling of materials.
iv. Failure to follow suppliers' storage instructions as provided on the packaging
Or delivery documents.
v. Failure to follow stock rotation code and therefore allowing old stock to be
left unused while newer stock is used.
In special circumstance, for example, if there has been a fire or a serious flood in the
storehouse, special effort should be made to review stocks for possible deterioration.
Nature of Discrepancies
 Materials received in excess/lesser in quantity

 Material specification does not tally with the specification as ordered
 Material dispatched by the suppliers but not found in the packet
 A difference item is dispatched by mistake in place of the ordered
 Material is visibly damaged
Reasons for Discrepancies
clerical errors
wrong descriptions
Incorrect counting
Misappropriation by dishonest staff
Incompetent and inefficient staff
Omission in issue note
Theft/pilferage
Lose to damage or leakage/deterioration
Material issued, but requisition not posted yet
Posting done on the wrong card
Main Purpose of Stock Verification
i. To reconcile the stock records and documents for their accuracy and usefulness
ii. To identify areas which require more disciplined document control
iii. To back up the balance sheet stock figures
iv. To minimize pilferage and
v. To minimize fraudulent practices
Methods of Stocktaking and Verification
A. Spot check

B. Routine/periodic check
C. Perpetual
D. Annual
E. Low point
A. spot check
It is design to verify the stock held without prior warning of the store keeper. This prevents
illegal replacement of goods/ materials outside the store.
B. Routine check
It is done by store keeper/ clerical when fresh stock received or issued. It is voluntary carried
out by the stores staff for their satisfaction and for accuracy of store materials. It should be
done in addition to annual stock taking. It is done for the following reasons:
 To check the accuracy of store record
 To verify the physical counting case of doubt or confusion
 To be ready for any inspection of stores
 To prevent pilferage of expensive items
C. Perpetual
Regularly checks carried throughout the year and carried by at least two persons. Discrepancy
between actual stock and the records examined and modified. Damage or deterioration
materials may get service or written-off.
D. Annual
It is the most common methods of checking inventory (store) both physical and book record.
A complete check is made of all materials, parts, in-process and finished goods in the
organization. It is done at the end the financial/physical year for an organization. Normally
work has been suspended and therefore, it must be completed in possible time. It is an
expensive method because it requires closing the plant or store for at least few days and it is
more useful for seasonal factories.

E. Low point/out of stock verification
These done when:

 The records shows a particular item has gone out of stock
 Only a small quantity in storage equipment
 The last bag/basket is open in case of sealed materials
Advantages of low point verification

 The store has not to be closed for physical verification in the case of annual
verification
 The verification is not made under pressure
 Errors and discrepancies are more readily discovered and adjusted than in any other
system
 It saves counting time and effort
It requires the cooperation of the accounting and stock department.

It is desirable to maintain store accounting, because of the following reasons:
 i, to indicate the quality and value of stores held
 To provide information about value of receipt and value issue
 To determine the ordering level without inspecting the stock
 to estimate accurate cost accounts wherever necessary to provide a basis for material
costing
 to determine if purchasing being made are economical
Importance of Stores accounting are:
 It is easier to attain efficiency and economy in management with proper stores account
record.
 Store accounts help in location and even prevention of waste and pilferage.
 They give valuable information on the capital locked up in inventory and thus help in
keeping their level to a reasonable point.
 Proper account record reveals the quality and value of the stock at all times and at the
time of loss or fire. There is no difficulty in insurance claims in case of insured goods.

 Accounts ensure that all goods are satisfactory accounted for as charges to production
or to various other jobs as sales or other costs of establishment.
 Proper accounting is safeguard against misappropriation of store.
 Store accounting system is valuable for accurate material costing
 The store ledger shows at a glance the exact stock held from day to day
 Correct accounting also help against duplication ordering
 Through a system of continuous test check of actual stock with ledger, actual stocking
which is a troublesome and expensive process can be eliminated.
Bin card
A bin is a container in which materials is kept. Bin card as the name suggest is a card placed a
bin. In other words, bin cards are kept with the physical stock either attacked to the bin or
racks containing the materials or filed in a box using separate cards for each item in stock. In
a company’s case, these cards are recommended to be kept in a card index. It records issue
and receipts of materials as they happen and give the balance at any time. One card is
maintained for each time. It shows its part number and description, size, and specification,
location of storage, receipt, issue and balance in hand. A bin card also contains particular
regarding minimum, maximum and ordering levels. The bin card assists the storekeeper to
control the stock as they provide continuous records of stock on each bin.
A bin card is a quantitative record of receipts, issues and closing balances of materials in
store. It does not contain information about the price of materials.
Stock verification/Stock-taking
Stock- taking is the process of verifying stores – record balances of entire range of items with
the physical balances.
Reasons for stock-taking Stock in inventory are as good as cash (Inventories are always
treated as part of working capital) and therefore need to be handled very carefully, preserved
properly to ensure that there is no deterioration, checked and counted from time to time to
determine that there are no variation in physical and book balances.
Following shall be the reasons for stocktaking

a) To verify the accuracy or stores records i.e. all issues, receipts and stock on hand is
accounted.
Over a period of time thousands of basic documents are posted in the ledgers/Kardex cards. If
the ground balances and book balances of the items are tallied, it shall be an indication that
not only all the documents have been posted but also posted in the correct code/folio. No. of
discrepancies with reference to total No. of items held in stock, is one of the important
attributes in evaluating the performance of Stores. Lesser is the number of discrepancies,
better the stores is managed.
b) To support the value of stock shown in the balance sheet by physical verification. Since
inventories represent working capital of the Corporation, it is reflected as assets in balance
sheet.
The question naturally arises as to correctness of these figures. By carrying the stocktaking
and also adjustment for the discrepancies, if any, it can reasonably be established that the
figures shown in balance sheet are correct.
c) To identify slow moving and non- moving items (In absence of computerized accounting
system) and considers the need for holding them anymore.
d) To disclose the looseness and lack of storage system or custody and control and rectify
such deficiencies to avoid recurrence in future. If for one item if there are different bin
locations or items are not available at allotted bin location, or items are lying in a haphazard
manner etc reflect on the poor warehousing.
e) To disclose possible loss of materials. If some of the items, due to lack of proper
preservation, have deteriorated beyond the intended use, these are highlighted in stocktaking
report when the items are physically checked.
f) To ensure that discrepancies, if any are properly investigated and accounted for, adjustment
vouchers are raised for write off/ write on shortages/excesses so as to bring the book balance
at par with ground balance.
g) To ensure that materials agree with description and specifications as recorded in store-
records and Priced Stores Ledger.
h) To suggest remedial/ preventive measures whenever abnormalities are observed.

i) To take the stock record balances correctly for purpose of balance sheet. After having
investigated the discrepancies and also made adjustment in books of Accounts the resultant
value shall be treated as correct stock value.
Reasons for stock discrepancies:
It is very important to know the reasons for discrepancies as (a) it shall help the custodian to
be very careful in day to day working to minimize the discrepancies (b) it shall facilitate
proper investigations for settlement of discrepancies.
i) Human error of omission-wrong issue of materials, wrong codification, wrong posting in
stock- records etc. When the almost identical items are lying near-by in the bin, possibilities
of issue from wrong code cannot be ruled out. Even error in writing the code or posting in the
wrong card in Kardex cabinet are common which results in discrepancies.
ii) Weight differences - when items are received in bulk and issued on piece-meal weight
there are bound to be some differences between the stock record balances and ground
balances.
iii) Measurement differences: when measurement of pieced- meal issues is carried by
different persons at different time. Theoretically speaking there shall not be any difference on
this account but practically some differences are bound to be there.
iv) Improper stocktaking i.e. the past stocktaking or the current stocktaking has not been
carried out properly. Sometime upon rechecking the materials discrepancies are resolved.
v) Improper documentation may also be one of the reasons for discrepancies in stock.
vi) Confusion of unit of measurement. This is one of the biggest reasons for the discrepancies
in stocktaking. Unit of measurement may be set but issues are made in number of pieces and
vice versa.
vii) Deterioration due to inherent characteristics of items. Because of inherent characteristics
of the items some losses have to be there, items like petrol, HSD etc.
Classification of assets:
i) Fixed assets held by different departments such furniture, Air Conditioners, Refrigerators,
PCs, Photocopier Cupboards, Bookshelves etc.
ii) All kind of stores held by sub-stores of user departments/ Shift Maintenance Stores if any.

iii) All kind of stores held by Stores department.
4.6. Methods of stocktaking:
4.6.1. Periodical stocktaking:
Whole range of stock shall be verified at the end of a given period i.e. end of financial year
normally
a) This method shall be most suitable for small size Power Station, which hold limited
number of items and process can be completed in short period. For bigger power station this
method may take many days and also large number of people. The job may also continue for
long time and during this period normal Stores operation may suffer.
b) Stock- taking shall be completed with the help of available manpower without appointing
specifically trained stock verifiers.
c) Stock- taking is done as near as possible to the date of balance sheets and values are more
authentic.
4.6.2. Continuous stock –taking:
Under this system stocktaking shall be done continuously throughout the year by specially
trained and appointed personnel known as stock-verifier/stock-taker. It shall be planned and
programmed in such a way that each item is verified at least once in year. A few items are
verified on each working day.
a) No need to close down normal store operations. Issues and receipts are affected only for the
particular small group of items being verified.
b) Normal posting of receipt and issues in stock records shall continue without any
interruption.
c) Stock- taking shall be done by few properly trained people who shall not only independent
from store staff but shall also have fairly good knowledge of store items and procedures due
to experience gained by them over the period.
d) Store people shall get sufficient time to investigate the discrepancies, as and when noticed
and do proper reconciliation of records and resolve them. Stocktaking may spread over a

period of 6-8 months and if not earlier, a discrepancy has to be resolved before close of
financial year i.e. 31st March of the year.
e) Shortages and excesses shall be written-off and written-on on a day- to- day basis. This
shall keep the stores records more in line with their actual physical balances and avoids
likelihood of major adjustment at the year-end.
f) Shall help in proper finalization of balance sheets. Since every item is checked once in a
year and necessary adjustments are carried out from time to time, value of stock shown in
priced stores ledger at the end of financial year can be taken for the purpose of balance sheet
without any further checking.
4.6.3 Surprise Stock- Taking/ Spot-Checks)
Surprise stocktaking of few items may be done any time as deemed fit by a team of at least
two senior officers nominated by head of unit.
4.6.4. Stocktaking by Auditors:
Auditors can also do stocktaking when they come for auditing of Accounts records. This has
to be limited for few items selected by them. Normally auditors with prior intimation to DE
(Stores) visit Stores and at random select some folio/codes/Kardex and advise the custodian to
take them to relevant bins so that physical counting can be done in their presence.
4.6.5. Self Stock- taking
This is an informal method of stocktaking. Concerned storekeepers shall do self
stocktaking when fresh receipts or issues are there and stock quantities are small and
countable.
This will help in identifying the discrepancies, if any from time to time and reconciling them
by checking stock records. This helps in reducing number of discrepancies when stocktaking
is done by other methods.
4.7. Preparation for Stock- Taking:
Formation of Team for Stock- Taking

(i) If stocktaking is to be done through periodical method, teams are formed by taking
personnel from different departments of the unit. Such personnel are given brief regarding the
process, details of various formats to be used and also the time schedule.
(ii) In continuous method of stocktaking, permanent stock takers shall be appointed on full
time basis who continue the stocktaking throughout the year in planned way. Such stock-
taker/ Stock Verifier shall report to Accounts Department. Stock- taking can also be done by
hiring the services of a reputed Charter Accountancy firm whose personnel do the job
throughout the year. In addition a team of labor force also needs to be organized who shall
help in counting, weighing or measuring the materials as the case may be. For heavy materials
even handling equipment shall be provided.
(iii) Stock Verification shall be taken up by a team comprising of a technical person of rank of
ADE and Accounts person of the rank of AO.
4.5.2. Steps to be taken for continuous method of stocktaking:
(i) Accounts Department shall draw up a program in consultation with Contracts &
Materials Management Department, for whole year in the beginning of financial year so that
stocktaking of all the store items is done at least once in a year.
(ii) Details of the program shall be communicated to stores personnel well in advance so that
necessary preparations are made at their end.
(iii) Reconciliation of Kardex / Bin cards and Price- Stores- Ledger shall done before
proceeding for stocktaking. If any variations are found, those are settled and balances of
both records are brought into conformity. This process helps to reduce number of
discrepancies at the time of stocktaking as errors of balancing, posting etc. are corrected
beforehand.
(iv) Stock- taking sheets, sequentially numbered shall be clearly written indicating
description, bin location, unit of measurement, code number and group holding stores etc
today, more than ever, companies must operate at maximum efficiency and provide superior
service to ensure profitability. Your ability to effectively manage your warehouse, reduce
costs and ensure smoothly run sales and fulfillment operations is critical to your success.
From receiving inventory and timely order fulfillment to automated validation of warehouse

activities and accurate inventory control, your warehouse operating system must be designed
to achieve peak performance across the entire enterprise.
Chapter Summary
Stores records shall be maintained to show particulars of receipt, issue and balances of each
item in stock at a given time. Store verification is the process of physically counting, measuring
or weighting the entire range of items in the stores and recording the results in a systematic
manner. Discrepancy is any deviation in the quantity and quality of the materials received and
ordered. Or it is any difference between the actual stock and the records of the items in stock.
Importance of Stores accounting are: It is easier to attain efficiency and economy in
management with proper stores account record, Store accounts help in location and even
prevention of waste and pilferage, They give valuable information on the capital locked up in
inventory and thus help in keeping their level to a reasonable point, Proper account record
reveals the quality and value of the stock at all times and at the time of loss or fire. There is no
difficulty in insurance claims in case of insured goods.
Stocktaking or physical inventory is the process of counting, weighting or otherwise

measuring all items in stock and recording the results. Stock taking, involves many valuable
and expensive man hours to arrange and carryout, plus a great deal of management time
needed to investigate the almost inevitable list of discrepancies. Stock taking enables to know
whether there are any discrepancies in the postings; whether any pilferage is taking place; and
whether the materials are in good condition. It also helps the preparation of the final
inventory for balance sheet purpose. Stock taking methods are mainly: Spot checking,
Periodic stock taking, Annual stock taking and Continuous stock taking.
The main methods of stocktaking and verification used in store are spot check routine/periodic
check, perpetual, annual and low point.

Chapter Five
5. Plant Layout And Its Relationship To Material Flows
Learning Objectives
At the end of this chapter the students or learner s should be able to:-
 Define plant layout and its importance to operations effectiveness and efficiency
 Discuss major principles of plant layout for any organizations
 Elaborate basic categories of lay out and its advantage and disadvantage
5.1 The Meaning of Layout and its Relation to Materials Flow
Plant layout refers to the physical arrangement of facilities. It is the configuration of

departments, work centers and equipment in the conversion process. The overall objective of
the plant layout is to design a physical arrangement that meets the required output quality and
quantity most economically.
According to James Moore, “Plant layout is a plan of an optimum arrangement of facilities
including personnel, operating equipment, storage space, material handling equipments and
all other supporting services along with the design of best structure to contain all these
facilities”.
5.1.1. Objectives of Plant Layout
The primary goal of the plant layout is to maximize the profit by arrangement of all the plant
facilities to the best advantage of total manufacturing of the product.
The objectives of plant layout are:
a. Streamline the flow of materials through the plant.
b. Facilitate the manufacturing process.
c. Maintain high turnover of in-process inventory.
d. Minimize materials handling and cost.
e. Effective utilization of men, equipment and space.
f. Make effective utilization of cubic space.

g. Flexibility of manufacturing operations and arrangements.

h. Provide for employee convenience, safety and comfort.
i. Minimize investment in equipment.
j. Minimize overall production time.
k. Maintain flexibility of arrangement and operation.
l. Facilitate the organizational structure.
Activity 5.1
 What is plant layout? -----------------------------------------------------------------------------
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 Mention any four objectives of plant layout----------------------------------------------------
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 Discuss major principles of plant layout -------------------------------------------------------
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5.1.2. Principles of Plant Layout
I. Principle of integration: A good layout is one that integrates men, materials,
machines and supporting services and others in order to get the optimum
utilization of resources and maximum effectiveness.
II. Principle of minimum distance: This principle is concerned with the minimum
travel (or movement) of man and materials. The facilities should be arranged
such that, the total distance travelled by the men and materials should be
minimum and as far as possible straight line movement should be preferred.
III. Principle of cubic space utilization: The good layout is one that utilizes both
horizontal and vertical space. It is not only enough if only the floor space is
utilized optimally but the third dimension, i.e., the height is also to be utilised
effectively.
IV. Principle of flow: A good layout is one that makes the materials to move in
forward direction towards the completion stage, i.e., there should not be any
backtracking.

V. Principle of maximum flexibility: The good layout is one that can be altered
without much cost and time, i.e., future requirements should be taken into
account while designing the present layout.
VI. Principle of safety, security and satisfaction: A good layout is one that gives due
consideration to workers safety and satisfaction and safeguards the plant and
machinery against fire, theft, etc.
VII. Principle of minimum handling: A good layout is one that reduces the material
handling to the minimum.
5.1.3. Classification Of Layout
Layouts can be classified into the following five categories:
a. Process layout
b. Product layout
c. Combination layout
d. Fixed position layout
e. Group layout
a. Process Layout
Process layout is recommended for batch production. All machines performing similar type of
operations are grouped at one location in the process layout e.g., all lathes, milling machines,
etc. are grouped in the shop will be clustered in like groups.
Thus, in process layout the arrangement of facilities are grouped together according to their
functions. A typical process layout is shown in Fig. 2.5. The flow paths of material through
the facilities from one functional area to another vary from product to product. Usually the
paths are long and there will be possibility of backtracking.
Process layout is normally used when the production volume is not sufficient to justify a
product layout. Typically, job shops employ process layouts due to the variety of products
manufactured and their low production volumes.
Advantages
o In process layout machines are better utilized and fewer machines are required.
o Flexibility of equipment and personnel is possible in process layout.

o Lower investment on account of comparatively less number of machines and lower cost
of general purpose machines.
o Higher utilization of production facilities.
o A high degree of flexibility with regards to work distribution to machineries and workers.
o The diversity of tasks and variety of job makes the job challenging and interesting.
o Supervisors will become highly knowledgeable about the functions under their
department.
Limitations
o Backtracking and long movements may occur in the handling of materials thus, reducing
material handling efficiency.
o Material handling cannot be mechanized which adds to cost.
o Process time is prolonged which reduce the inventory turnover and increases the in
process inventory.
o Lowered productivity due to number of set-ups.
o Throughput (time gap between in and out in the process) time is longer.
o Space and capital are tied up by work-in-process.
Activity 5.2
What do you mean by process layout? -----------------------------------------------------------------
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Write the major difference between process layout and service layout-----------------------------
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What makes process layout difficult than other forms of layouts? ---------------------------------
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b. Product Layout
In this type of layout, machines and auxiliary services are located according to the processing
sequence of the product. If the volume of production of one or more products is large, the
facilities can be arranged to achieve efficient flow of materials and lower cost per unit.
Special purpose machines are used which perform the required function quickly and reliably.

The product layout is selected when the volume of production of a product is high such that a
separate production line to manufacture it can be justified. In a strict product layout, machines
are not shared by different products. Therefore, the production volume must be sufficient to
achieve satisfactory utilization of the equipment.
Advantages
 The flow of product will be smooth and logical in flow lines.
 In-process inventory is less.
 Throughput time is less.
 Minimum material handling cost.
 Simplified production, planning and control systems are possible.
 Less space is occupied by work transit and for temporary storage.
 Reduced material handling cost due to mechanised handling systems and straight flow.
 Perfect line balancing which eliminates bottlenecks and idle capacity.
 Manufacturing cycle is short due to uninterrupted flow of materials.
 Small amount of work-in-process inventory.
 Unskilled workers can learn and manage the production.
Limitations
 A breakdown of one machine in a product line may cause stoppages of machines in
the downstream of the line.
 A change in product design may require major alterations in the layout.
 The line output is decided by the bottleneck machine.
 Comparatively high investment in equipments is required.
 Lack of flexibility. A change in product may require the facility modification.
Activity 5.3
 Define product layout? ---------------------------------------------------------------------------
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 Write the major advantages and disadvantages of product layout? ------------------------
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 What is combine layout and when to apply this layout system? -----------------------------
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c. Combination Layout
A combination of process and product layouts combines the advantages of both types of
layouts.
A combination layout is possible where an item is being made in different types and sizes.
Here machinery is arranged in a process layout but the process grouping is then arranged in a
sequence to manufacture various types and sizes of products. It is to be noted that the
sequence of operations remains same with the variety of products and sizes. Figure 2.7 shows
a combination type of layout for manufacturing different sized gears.
d. Fixed Position Layout
This is also called the project type of layout. In this type of layout, the material, or major
components remain in a fixed location and tools, machinery, men and other materials are
brought to this location. This type of layout is suitable when one or a few pieces of identical
heavy products are to be manufactured and when the assembly consists of large number of
heavy parts, the cost of transportation of these parts is very high.
Advantages
The major advantages of this type of layout are:
 Helps in job enlargement and upgrades the skills of the operators.
 The workers identify themselves with a product in which they take interest and pride in
doing the job.
 Greater flexibility with this type of layout.
 Layout capital investment is lower.
e. Group Layout (or Cellular Layout)
There is a trend now to bring an element of flexibility into manufacturing system as regards to
variation in batch sizes and sequence of operations. A grouping of equipment for performing a
sequence of operations on family of similar components or products has become all the
important.

Group technology (GT) is the analysis and comparisons of items to group them into families
with similar characteristics. GT can be used to develop a hybrid between pure process layout
and pure flow line (product) layout. This technique is very useful for companies that produce
variety of parts in small batches to enable them to take advantage and economics of flow line
layout.
The application of group technology involves two basic steps; first step is to determine
component families or groups. The second step in applying group technology is to arrange the
plants equipment used to process a particular family of components. This represents small
plants within the plants. The group technology reduces production planning time for jobs. It
reduces the set-up time.
Thus group layout is a combination of the product layout and process layout. It combines the
advantages of both layout systems. If there are m-machines and n-components, in a group
layout (Group-Technology Layout), the m-machines and n-components will be divided into
distinct number of machine-component cells (group) such that all the components assigned to
a cell are almost processed within that cell itself. Here, the objective is to minimize the inter
cell movements.
The basic aim of a group technology layout is to identify families of components that require
similar of satisfying all the requirements of the machines are grouped into cells. Each cell is
capable of satisfying all the requirements of the component family assigned to it.
The layout design process considers mostly a single objective while designing layouts. In
process layout, the objective is to minimize the total cost of materials handling. Because of
the nature of the layout, the cost of equipments will be the minimum in this type of layout. In
product layout, the cost of materials handling will be at the absolute minimum. But the cost of
equipments would not be at the minimum if the equipments are not fully utilized.
In-group technology layout, the objective is to minimize the sum of the cost of transportation
and the cost of equipments. So, this is called as multi-objective layout.
Advantages of Group Technology Layout
Group Technology layout can increase—
 Component standardization and rationalization.

 Reliability of estimates.
 Effective machine operation and productivity.
 Customer service.
It can decrease the—
o Paper work and overall production time.
o Work-in-progress and work movement.
o Overall cost.
Limitations of Group Technology Layout

This type of layout may not be feasible for all situations. If the product mix is completely
dissimilar, then we may not have meaningful cell formation.
Activity 5.4
 Compare and contrast process layout, product layout and fixed layout? ----------------
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 What is group layout and how to apply this type of layout system? ----------------------
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 How to design layouts?-----------------------------------------------------------------------
 Elaborate each layout designs with an example? --------------------------------------------
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5.2. Layout Designs
a. Design of Product Layout
In product layout, equipment or departments are dedicated to a particular product line,
duplicate equipment is employed to avoid backtracking, and a straight-line flow of material
movement is achievable. Adopting a product layout makes sense when the batch size of a
given product or part is large relative to the number of different products or parts produced.
Assembly lines are a special case of product layout. In a general sense, the term assembly line
refers to progressive assembly linked by some material-handling device. The usual
assumption is that some form of pacing is present and the allowable processing time is
equivalent for all workstations. Within this broad definition, there are important differences
among line types. A few of these are material handling devices (belt or roller conveyor,

overhead crane); line configuration (U-shape, straight, branching); pacing (mechanical,

human); product mix (one product or multiple products); workstation characteristics (workers
may sit, stand, walk with the line, or ride the line); and length of the line (few or many
workers). The range of products partially or completely assembled on lines includes toys,
appliances, autos, clothing and a wide variety of electronic components. In fact, virtually any
product that has multiple parts and is produced in large volume uses assembly lines to some
degree.
A more-challenging problem is the determination of the optimum configuration of operators
and buffers in a production flow process. A major design consideration in production lines is
the assignment of operation so that all stages are more or less equally loaded.
b. Design of Process Layout
The analysis involved in the design of production lines and assembly lines relates primarily to
timing, coordination, and balance among individual stages in the process.
For process layouts, the relative arrangement of departments and machines is the critical
factor because of the large amount of transportation and handling involved.
Procedure for designing process layouts
Process layout design determines the best relative locations of functional work centres. Work
centers that interact frequently, with movement of material or people, should be located close
together, whereas those that have little interaction can be spatially separated. One approach of
designing an efficient functional layout is described below.
 List and describe each functional work centre.
 Obtain a drawing and description of the facility being designed.
 Identify and estimate the amount of material and personnel flow among work centers
 Use structured analytical methods to obtain a good general layout.
 Evaluate and modify the layout, incorporating details such as machine orientation,
storage area location, and equipment access.
The first step in the layout process is to identify and describe each work centre. The
description should include the primary function of the work centre; drilling, new accounts, or
cashier; its major components, including equipment and number of personnel; and the space

required. The description should also include any special access needs (such as access to
running water or an elevator) or restrictions (it must be in a clean area or away from heat). For
a new facility, the spatial configuration of the work centers and the size and shape of the
facility are determined simultaneously. Determining the locations of special structures and
fixtures such as elevators, loading docks, and bathrooms becomes part of the layout process.
However, in many cases the facility and its characteristics are a given. In these situations, it is
necessary to obtain a drawing of the facility being designed, including shape and dimensions,
locations of fixed structures, and restrictions on activities, such as weight limits on certain
parts of a floor or foundation.
c. Service Layout
The major factors considered for service providers, is an impact of location on sales and
customer satisfaction. Customers usually look about how close a service facility is,
particularly if the process requires considerable customer contact. Hence, service facility
layouts should provide for easy entrance to these facilities from the freeways. Well-organized
packing areas, easily accessible facilities, well designed walkways and parking areas are some
of the requirements of service facility layout.
Service facility layout will be designed based on degree of customer contact and the service
needed by a customer. These service layouts follow conventional layouts as required. For
example, for car service station, product layout is adopted, where the activities for servicing a
car follows a sequence of operation irrespective of the type of car. Hospital service is the best
example for adaptation of process layout. Here, the service required for a customer will
follow an independent path.
d. Product Design
Product design deals with conversion of ideas into reality. Every business organization has to
design, develop and introduce new products as a survival and growth strategy. Developing the
new products and launching them in the market is the biggest challenge faced by the
organizations.
The entire process of need identification to physical manufactures of product involves three
functions: marketing, product development, and manufacturing. Product development

translates the needs of customers given by marketing into technical specifications and
designing the various features into the product to these specifications. Manufacturing has the
responsibility of selecting the processes by which the product can be manufactured. Product
design and development provides link between marketing, customer needs and expectations
and the activities required to manufacture the product.
e. process design
Process design is a macroscopic decision-making of an overall process route for converting
the raw material into finished goods. These decisions encompass the selection of a process,
choice of technology, process flow analysis and layout of the facilities. Hence, the important
decisions in process design are to analyze the workflow for converting raw material into
finished product and to select the workstation for each included in the workflow.
5.3. Production Planning And Control
Production planning and control can be defined as the process of planning the production in
advance, setting the exact route of each item, fixing the starting and finishing dates for each
item, to give production orders to shops and to follow up the progress of products according
to orders.
The principle of production planning and control lies in the statement ‘First Plan Your Work
and then Work on Your Plan’. Main functions of production planning and control includes
planning, routing, scheduling, dispatching and follow-up.
Planning is deciding in advance what to do, how to do it, when to do it and who is to do it.
Planning bridges the gap from where we are, to where we want to go. It makes it possible for
things to occur which would not otherwise happen.
Routing may be defined as the selection of path which each part of the product will follow,
which being transformed from raw material to finished products. Routing determines the most
advantageous path to be followed from department to department and machine to machine till
raw material gets its final shape.
Scheduling determines the programmed for the operations. Scheduling may be defined as ‘the
fixation of time and date for each operation’ as well as it determines the sequence of
operations to be followed.

Dispatching is concerned with the starting the processes. It gives necessary authority so as to
start a particular work, which has already been planned under ‘Routing’ and ‘Scheduling’.
Therefore, dispatching is ‘release of orders and instruction for the starting of production for
any item in acceptance with the route sheet and schedule charts’.
The function of follow-up is to report daily the progress of work in each shop in a prescribed
pro- forma and to investigate the causes of deviations from the planned performance.
Quality control
Quality Control (QC) may be defined as ‘a system that is used to maintain a desired level of
quality in a product or service’. It is a systematic control of various factors that affect the
quality of the product. Quality control aims at prevention of defects at the source, relies on
effective feedback system and corrective action procedure.
Quality control can also be defined as ‘that industrial management technique by means of
which product of uniform acceptable quality is manufactured’. It is the entire collection of
activities which ensures that the operation will produce the optimum quality products at
minimum cost.
The main objectives of quality control are:
 To improve the companies income by making the production more acceptable to the
Customers i.e., by providing long life, greater usefulness, maintainability, etc.
 To reduce companies cost through reduction of losses due to defects.
 To achieve interchangeability of manufacture in large scale production.
 To produce optimal quality at reduced price.
 To ensure satisfaction of customers with productions or services or high quality level,
to build customer goodwill, confidence and reputation of manufacturer.
 To make inspection prompt to ensure quality control.
 To check the variation during manufacturing.
5.4. Materials Management
Materials management is that aspect of management function which is primarily concerned
with the acquisition, control and use of materials needed and flow of goods and services
connected with the production process having some predetermined objectives in view.

The main objectives of materials management are:

 To minimize material cost.
 To purchase, receive, transport and store materials efficiently and to reduce the related
cost.
 To cut down costs through simplification, standardization, value analysis, import
substitution, etc.
 To trace new sources of supply and to develop cordial relations with them in order to
ensure continuous supply at reasonable rates.
 To reduce investment tied in the inventories for use in other productive purposes and
to develop high inventory turnover ratios.
5.5. Maintenance management
In modern industry, equipment and machinery are a very important part of the total productive
effort. Therefore, their idleness or downtime becomes are very expensive. Hence, it is very
important that the plant machinery should be properly maintained.
The main objectives of maintenance management are:
 To achieve minimum breakdown and to keep the plant in good working condition at
the lowest possible cost.
 To keep the machines and other facilities in such a condition that permits them to be
used at their optimal capacity without interruption.
 To ensure the availability of the machines, buildings and services required by other
sections of the factory for the performance of their functions at optimal return on
investment.
Activity 5.5
 How production planning and control, materials management and maintenance
management contribute to the effectiveness of plant layout? --------------------------------
--------------------------------------------------------------------------------------------------
 Discuss Storehouse Bin location system, fixed location system, Combination of fixed
and random location system, Random system.

5.6. Warehousing
It has to be ensured that all materials received in stores are properly stored to avoid
Deterioration, and to locate promptly when required to be issued. Stock Ledger posting of all
receiving and issue documents shall be done promptly and distributed to concerned
departments. This shall help to keep book balances in conformity with physical balances most
of the time.
Stock maintained by the organization shall be distributed among different enclosures (termed
as storehouse and stock yards) to be provided with appropriate racking and handling facilities
to store different sizes, shapes and weights of materials.
BIN Location System
A suitable bin numbering system shall be developed. Open yards shall also be numbered and
divided into segments so as to determine proper location. Location system may however be
fixed, random or combination of both, depending upon local needs. However combination of
both fixed and random locations shall be preferred.
Location system plays a very important role in warehousing operations and as such need to be
elaborated in details
(a) Storehouse Bin location system:
In large size stores of major power stations of the Corporation, many thousand items may be
kept to meet requirements of various users. It shall be imperative that a systematic binning
scheme is organized so that items are located promptly as and when need arises and also
optimum use of available space is attained. Bin locations need to be reflected on each folio of
stock-ledgers or entered into computer master, so that anybody who is issuing the materials
knows exactly where the items are lying in stores.
(b) Requirements of systematic Bin location system are
(i) Storehouse area shall be divided into section; each one can be identified by a letter or
number
(ii) Each stack of storage fixture in a section is allocated a letter or number commencing
from one end.

(iii) Each bay or shelving or racking forming a stack is similarly identified.

(iv) Finally each individual bin has a number
(v) Open yards are also needed to be divided and identified.
A location of an item in storehouse is as good as an address in the form of House,
Street, Town and District.
Location number for each item is marked with pencil on the stock ledgers, when the random
location system is in practice, this helps in changes without spoiling cards/ folio papers.
c) Fixed location system:
This denotes traditional arrangements whereby place of storage of each item shall be more or
less fixed or static. Advantages of the system are:
 Store staff become accustomed to the general layout of the materials and by experience
remembers probable location of items.
 Similar nature of items as per code catalogue are stored together
Limitation of system:
 Sufficient place must be set apart to provide for reasonable variation in the quantity of
each item.
 Use of available store space to optimum level shall not be possible- many of bins may be
empty due to non-availability of stock and for many items it may not be possible to
assign bin location due to shortage of space.
 Practically items may not be binned in order of code vocabulary due to different sizes,
shapes and weight. For such type of items, different types of storage arrangements may
be needed.
d) Random system:
Under this system location/bin of items shall keep on changing, based upon availability of
space and details are incorporated in stock-ledgers/computer master. The system ensures
efficient utilization of space in stores and is useful in storehouses where movement of
materials is fast.
Main disadvantage is the majority of items cannot be located without reference to stock
ledgers/ computer master, which contains location details.

e) Combination of fixed and random location system:

Random system with some degree of broad fixed location shall be of most practical
advantages. In this system storage area of one category of items of similar nature shall be
more or less fixed but exact bin number or rack/shelves shall keep on changing based upon
space availability.
For example, all types of bearings shall be in the same storage area/storehouse but
rack/shelve/bin for each type of bearing shall not be fixed. Bearing can be stored within that
area on any shelve/rack, which has empty space. It shall, however, to be ensured that all
bearings of a particular type and size have to be at one location only. This shall help in storage
of similar type of materials in one store area.
Facilities need to be developed for air-conditioned storage of electronic items and also
humidity free stores room for storage of items like electrodes, motor winding etc. (by
providing dehumidifier).
Similarly facilities shall be developed for storing heavy items and abnormally big items. Such
stores shall be provided with EOT crane for handling heavy items.
Chapter Summary
The primary goal of the plant layout is to maximize the profit by arrangement of all the plant
facilities to the best advantage of total manufacturing of the product. The major principles of
plant layout are Principle of integration, Principle of minimum distance, Principle of cubic
space utilization, Principle of flow, Principle of maximum flexibility, Principle of minimum
handling, Principle of safety, security and satisfaction. Layouts can be classified into the
following categories: such as Process layout, Product layout, Combination layout, fixed
position layout, Group layout.
Stock maintained by the organization shall be distributed among different enclosures (termed
as storehouse and stock yards) to be provided with appropriate racking and handling facilities
to store different sizes, shapes and weights of materials.

Self Test Review Questions
1. What is plant layout? ------------------------------------------------------------------------

---------------------------------------------------
2. Mention any four objectives of plant layout----------------------------------------------
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3. Discuss major principles of plant layout -------------------------------------------------
---------------------------------------------------------------------------
4. What do you mean by process layout? ----------------------------------------------------
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5. Write the major difference between process layout and service layout---------------
---------------------------------------------------------------
6. What makes process layout difficult than other forms of layouts? -------------------
------------------------------------------------------------------------------------------------
7. Define product layout? ---------------------------------------------------------------------
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8. Write the major advantages and disadvantages of product layout? --------------
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9. What is combine layout and when to apply this layout system? -------------------
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10. Compare and contrast process layout, product layout and fixed layout? -----------
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11. What is group layout and how to apply this type of layout system? ------------------
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12. How to design layouts and elaborate each layout designs with an example? ------
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Chapter six
6. Materials Handling Management and Equipment

Learning objectives
At the end of this chapter the students should be able to: -
 Define material handling equipment
 Identify major Objectives of Material Handling
 Discuss Principles of Material Handling
 Selection of Material Handling Equipments
 Evaluation of Material Handling System
 Distinguish Material Handing Equipments
 Understand Guidelines for Effective Utilization of Material Handing Equipments
6.1. Introduction and Meaning
Materials handling management is among many factors that contribute to improve a

company’s performance. The Materials Handling Industry of America [MHIA] defines
materials handling management as “Material Handling is the movement, storage, control and
protection of material, goods, and products throughout the process of manufacturing,
distribution, consumption and disposal, the focus of materials handling management is the
methods, mechanical equipment, systems and related controls used to achieve these
functions” (mhia.org/learning/glossary). Then it is observed that handling is broader than
simple materials movement, although both terms are sometimes used as synonyms.
The relevance of materials handling stems from the intrinsic relationship that it has with
production flow. When it presents an imbalance, there is formation of extra stock or rupture in
supply. When the flow does not have enough velocity, transit time is long and the system is
not capable of serving the customers when they need it.
It is well understood that material handling improvement may have positive effects over
production. However, it is not only production, but the way the employees see the new

situation. When the perception is favorable, the benefits are possible; if not, behavioral issues
can emerge. Evaluations are important when interventions into the work environment are
implemented. The present work is specifically related to materials handling management. By
means of effective materials handling management, the company’s operational performance
may improve (Chopra & Meindl, 2001; Rosenbloom, 2003) aiming to satisfy the customers or
meet their expectations in terms of their needs, desires and demands (Oliver, 2010; Stock &
Lambert, 2001).
Materials handling makes production flow possible, as it gives dynamism to static elements
such as materials, products, equipments, layout and human resources (Stock & Lambert,
2001; Chopra & Meindl, 2001). Groover (2001) highlights that despite its importance,
materials handling is a topic that frequently is treated superficially by the companies. Howev-
er, other authors have perceived its relevance. During the period in which Shingo (1996)
contributed to the development of the Toyota Production System, he developed the
Production Function Mechanism that proposes to explain how the production phenomenon
happens.
Shingo (1996) indicated that, in the West, production was treated as a process of a sequence
of operations. In the Production Function Mechanism, the concepts are directly related to a
production analysis focus. A process analysis consists of an observation of the production
flows that turn raw materials into final products. From this concept, the author highlights that
the main analysis is the one associated with the process, because it follows the production
object. The analysis of the operations comes later because it focuses on production subjects
(operators and machines). When making this distinction, it is possible to perceive the
relevance of materials handling. Beyond the basic function of movement, it is also relevant to
cite the functions of storage and information transfer, which occurs simultaneously and has
both strategic and operational dimensions. Organizations are relying on information systems
using tools like Electronic Data Interchange (EDI), or similar information technology
resources, to gain in precision and reliability, in the interchange, and availability of
information (Lambert & Stock, 2001; Laudon & Laudon, 2006, Milan, Basso & Pretto, 2007).

According to Asef-Vaziri & Laporte (2005) an important proportion of manufacturing

expenses can be attributed to material handling and the most critical material handling
decisions in this area are the arrangement and design of material flow patterns. This idea is
shared by Ioannou (2002), which argues that an important aspect of any production system is
the design of a material handling system (MHS) which integrates the production operations
The relevance also occurs in another context. Ballou (1993) states that the storage and
handling of goods are essential among the set of logistics activities, and their costs can absorb
12% to 40% of its costs. In addition, the MHIA estimates that 20% to 25% of manufacturing
costs are associated to handling (Groover, 2001, p. 281). According to Sule (1994) apud
Sujono & Lashkari (2006), material handling accounts for 30–75% of the total cost of a
product along the production chain, and efficient material handling can be responsible for
reducing the manufacturing system operations cost by 15–30%.
For Bowersox and Closs (1996), the main logistic responsibility in manufacturing is to
formulate a master-program for the timely provision of materials, components and work-in-
process. Stevenson (2001) understands that logistics (including materials and goods flowing
in and out of a production facility as well as its internal handling) has become very important
to an organization to acquire competitive advantages, as the companies struggle to deliver the
right product at the correct place and time. The main challenge is to promote, with low cost, a
flow whose velocity allows the execution of manufacturing process with the expected
satisfaction level. Elements and Characteristics of a Material Handling System
Materials handling study requires that several elements are considered. The first is a handling
system project, which covers activities of sequencing, velocity, layout and routing (Groover,
2001). In order to complete the analysis, Groover (2001) recommends analyzing the material
itself (or object) to be transported. Therefore, it suggests the classification of Muther and
Hagan (apud Groover, 2001), which considers: (i) physical state (solid, liquid, gas); (ii) size
(volume, length, width, height); (iii) weight; (iv) condition (hot, cold, dry, dirty, sticky,
adhesive); (v) risk of damage (weak or strong); and (vi) safety hazards (explosive, flammable,
toxic, corrosive, etc.).

Additionally, the issue of equipment and devices must be examined. Dias (1993) adopts the
term “moving” to describe what, in this article, is called management (handling) to adopt the
terminology of Groover (2001). When dealing with equipment, Dias (1993) presents a broad
classification that covers five categories: (i) transporters (belts, chains, rollers, etc.); (ii)
cranes, hoists and lifts; (iii) industrial vehicles (carts, tractors, pallet transporters, forklifts);
(iv) positioning equipment, weighing and control (ramps, transfer equipment); and (v) stents
and support structures (pallets, holders, reels).
According to Chan, Ip & Lau (1999), a key factor in material handling system design process
is the selection and configuration of equipment for material transportation. This is directly
related to this study.
According to Gurgel (1996), the equipment should be selected based on some preliminary
considerations: take into account the utilization of the factory floor and its load capacity;
examine the dimensions of doors and corridors; pay close attention to ceiling height, identify
the environmental conditions and their nature, avoid the use of combustion engines traction
equipments in storage of food products, meet all safety standards to protect humans and to
eliminate the possibility of incurring criminal and civil liabilities arising from accidents, and
examine all kinds of available energy options and their capacity to supply required
movements.
The right choice of equipment and location of work-in-process is fundamental for the
optimization of a company’s manufacturing capacity. Bowersox and Closs (1996) state that, a
critical factor in positioning stocks in process is, a balance between convenience and
consolidation to create efficiencies when the stock flows along the value chain. The
importance of layout is the placement of equipment and, consequently, restricts possible
routes and sequencing, prominence that the subject is treated in production management
literature. The analysis of the relationship between layout studies and material handling,
however, does not receive much attention in the same literature. This lack of attention can be
seen in works like Gaither and Frazier (2002), Chase, Jacobs and Aquilano (2006) and Slack,
Chambers, Harland, Harrison and Johnston (1997).

Finally, the systems and information technology constitute essential factors for materials
handling management. Stair and Reynolds (2006), Laudon and Laudon (2006) and O’Brien
and Marakas (2007) support the study of fundamentals and general principles of information
systems. In order to improve the performance of distribution operations and, in this specific
case, the internal material handling process, it is important to consider both human and
technical factors (Chakravorty, 2008). In this sense, this study assesses the internal customers’
perception of a material handling process improvement. With regard to the attributes to be
considered in a material handling system, according to Kulak (2005), effective use of labor,
providing system flexibility, increasing productivity, decreasing lead times and costs are some
of the most important factors influencing selection of material handling equipment. These
factors are directly related to some attributes found in the present study.
The determination of a material handling system involves both the selection of suitable
material handling equipment and the assignment of material handling operations to each
individual piece of equipment (Sujono & Lashkari, 2006). Hence, according to Sujono &
Lashkari (2006) material handling system selection can be defined as the selection of material
handling equipment to perform material handling operations within a working area
considering all aspects of the products to be handled. In this context it is important to mention
that, in this study, only the selection of the material handling
Haynes defines “Material handling embraces the basic operations in connection with the
movement of bulk, packaged and individual products in a semi-solid or solid state by means
of gravity manually or power-actuated equipment and within the limits of individual
producing, fabricating, processing or service establishment”. Material handling does not add
any value to the product but adds to the cost of the product and hence it will cost the customer
more. So the handling should be kept at minimum. Material handling in Indian industries
accounts for nearly 40% of the cost of production. Out of the total time spent for
manufacturing a product, 20% of the time is utilized for actual processing on them while the
remaining 80% of the time is spent in moving from one place to another, waiting for the
processing. Poor material handling may result in delays leading to idling of equipment.

Materials handling can be also defined as ‘the function dealing with the preparation, placing
and positioning of materials to facilitate their movement or storage’. Material handling is the
art and science involving the movement, handling and storage of materials during different
stages of manufacturing. Thus the function includes every consideration of the product except
the actual processing operation. In many cases, the handling is also included as an integral
part of the process. Through scientific material handling considerable reduction in the cost as
well as in the production cycle time can be achieved.
Material Handling’ refers to the ‘moving of materials from the store room to the machine and
from one machine to the next during the process of manufacture’. It is also defined as the ‘art
and science of moving, packing and storing of products in any form’. It is a specialized
activity for a modern manufacturing concern, with 50 to 75% of the cost of production. This
cost can be reduced by proper section, operation and maintenance of material handling
devices.
Material handling devices increases the output, improves quality, speeds up the deliveries and
decreases the cost of production. Hence, material handling is a prime consideration in the
designing new plant and several existing plants.
Material handling is the science of moving materials from one place to another. Materials
includes raw materials, finished components finished goods packing materials operational
supplies, tools jigs and fixtures, scrap etc. Material handling is closely connected with the storage
of materials. In any store organizations one of the major problems to which considerable thought
should be given is material handling. A good deal of labor and money can be saved by using the
right method and proper equipment in the movement of materials.
6.2. Objectives of Material Handling
Following are the objectives of material handling:

 Minimize cost of material handling.
 Minimize delays and interruptions by making available the materials at the point of use at
right quantity and at right time.

 Increase the productive capacity of the production facilities by effective utilization of

capacity and enhancing productivity.
 Safety in material handling through improvement in working condition.
 Maximum utilization of material handling equipment.
 Prevention of damages to materials.
 Lower investment in process inventory.
Activity 6.1
 Define clearly material handling management and its role for the effectiveness of any
operation? --------------------------------------------------------------------------------------------
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 Mention some of the objectives of effective material handling management? ---------------
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 Explain major principles of material handling --------------------------------------------------
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6.3. Principles of Material Handling
Following are the principles of material handling:

 Planning principle: All handling activities should be planned.
 Systems principle: Plan a system integrating as many handling activities as possible and
coordinating the full scope of operations (receiving, storage, production, inspection,
packing, warehousing, supply and transportation).
 Space utilization principle: Make optimum use of cubic space.
 Unit load principle: Increase quantity, size, weight of load handled.
 Gravity principle: Utilize gravity to move a material wherever practicable.
 Material flow principle: Plan an operation sequence and equipment arrangement to
optimize material flow.
 Simplification principle: Reduce combine or eliminate unnecessary movement and/or
equipment.
 Safety principle: Provide for safe handling methods and equipment.

 Mechanization principle: Use mechanical or automated material handling equipment.

 Standardization principle: Standardize method, types, size of material handling
equipment.
 Flexibility principle: Use methods and equipment that can perform a variety of task and
applications.
 Equipment selection principle: Consider all aspect of material, move and method to be
utilized.
 Dead weight principle: Reduce the ratio of dead weight to pay load in mobile equipment.
 Motion principle: Equipment designed to transport material should be kept in motion.
 Idle time principle: Reduce idle time/unproductive time of both MH equipment and man
power.
 Maintenance principle: Plan for preventive maintenance or scheduled repair of all
handling equipment.
 Obsolescence principle: Replace obsolete handling methods/equipment when more
efficient method/equipment will improve operation.
 Capacity principle: Use handling equipment to help achieve its full capacity.
 Control principle: Use material handling equipment to improve production control,
inventory control and other handling.
 Performance principle: Determine efficiency of handling performance in terms of cost
per unit handled which is the primary criterion.
 Eliminate unnecessary handling
 Minimize manual handling and use mechanical handling equipment where possible.
 Use the right equipment handling so as to avoid damage and to reduce cost.
 Handle materials in the largest convenient unit load by the quickest means over the shortest
route.
 Make full use of the equipment

6.4. Selection of Material Handling Equipments
Selection of Material Handling equipment is an important decision as it affects both cost and
efficiency of handling system. The following factors are to be taken into account while
selecting material handling equipment.
6.4.1. Properties of the Material
Whether it is solid, liquid or gas, and in what size, shape and weight it is to be moved, are
important considerations and can already lead to a preliminary elimination from the range of
available equipment under review. Similarly, if a material is fragile, corrosive or toxic this
will imply that certain handling methods and containers will be preferable to others.
Layout and Characteristics of the Building
Another restricting factor is the availability of space for handling. Low-level ceiling may
preclude the use of hoists or cranes, and the presence of supporting columns in awkward
places can limit the size of the material-handling equipment. If the building is multi storied,
chutes or ramps for industrial trucks may be used. Layout itself will indicate the type of
production operation (continuous, intermittent, fixed position or group) and can indicate some
items of equipment that will be more suitable than others. Floor capacity also helps in
selecting the best material handling equipment.
Production Flow
If the flow is fairly constant between two fixed positions that are not likely to change, fixed
equipment such as conveyors or chutes can be successfully used. If, on the other hand, the
flow is not constant and the direction changes occasionally from one point to another because
several products are being produced simultaneously, moving equipment such as trucks would
be preferable.

Cost considerations
This is one of the most important considerations. The above factors can help to narrow the
range of suitable equipment, while costing can help in taking a final decision. Several cost
elements need to be taken into consideration when comparisons are made between various
items of equipment that are all capable of handling the same load. Initial investment and
operating and maintenance costs are the major cost to be considered. By calculating and
comparing the total cost for each of the items of equipment under consideration, a more
rational decision can be reached on the most appropriate choice.
Nature of Operations
Selection of equipment also depends on nature of operations like whether handling is

temporary or permanent, whether the flow is continuous or intermittent and material flow
pattern-vertical or horizontal.
.Engineering Factors
Selection of equipment also depends on engineering factors like door and ceiling dimensions,
floor space, floor conditions and structural strength.
Equipment Reliability
Reliability of the equipment and supplier reputation and the after sale service also plays an
important role in selecting material handling equipments.
Activity 6.2
 What criteria are warehouse managers used to select materials handling equipments?
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 How to evaluate material handling system within the organization? ----------------------
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6.5. Evaluation of Material Handling System
The cost factors include investment cost, labor cost, and anticipated service hours per year,
utilization, and unit load carrying ability, loading and unloading characteristics, operating
costs and the size requirements are the factors for evolution of material handling equipment.
Other factors to be considered are source of power, conditions where the equipment has to
operate and such other technical aspects. Therefore, choices of equipments in organization
will improve the material handling system through work study techniques. They usually result
in improving the ratio of operating time to loading time through palletizing, avoiding
duplicative movements, etc. Obsolete handling systems can be replaced with more efficient
equipments.
The effectiveness of the material handling system can be measured in terms of the ratio of the
time spent in the handling to the total time spent in production. This will cover the time
element. The cost effectiveness can be measured by the expenses incurred per unit weight
handled. It can be safely said that very few organizations try to collate the expenses and time
in this manner so as to objectively view the performance and to take remedial measures. Some
of the other indices which can be used for evaluating the performance of handling systems are
listed below:
Equipment Utilization Ratio
Equipment utilization ratio is an important indicator for judging the materials handling
system. This ratio can be computed and compared with similar firms or in the same over a
period of time. In order to know the total effort needed for moving materials, it may be
necessary to compute Materials Handling Labor (MHL) ratio. This ratio is calculated as
under:
MHL = Personnel assigned to materials handling
Total operating work force
In order to ascertain whether is the handling system delivers materials work centers with
maximum efficiency; it is desirable to compute direct labor handling loss ratio. The ratio is:

DLHL =Materials handling time lost of labour

Total direct labor time
The movement’s operations ratio which is calculated after dividing total number of moves by
total number of productive operations indicates whether the workers are going through too
many motions because of poor routing.
It should, however, be emphasized that the efficiency of materials handling mainly depends
on the following factors: (i) efficiency of handling methods employed for handling a unit
weight through a unit distance, (ii) efficiency of the layout which determines the distance
through which the materials have to be handled, (iii) utilisation of the handling facilities, and
(iv) efficiency of the speed of handling.
In conclusion, it can be said that an effective material handling system depends upon tailoring
the layout and equipments to suit specific requirements. When a large volume has to be
moved from a limited number of sources to a limited number of destinations the fixed path
equipments like rollers, belt conveyors, overhead conveyors and gauntry cranes are preferred.
For increased flexibility varied path equipments are preferred
6.6. Benefits of proper Materials Handling
a. Increase safety
b. Reduce handling cost
c. Reduce risk of damage to stock
d. Reduce labor requirements
e. Less fatigue
f. Greater economy in use of space
6.7. Suggestions to Reduce Handling
The following are some useful suggestions to eliminate unnecessary handling
 Arrange with suppliers to deliver materials in standard size containers suitable for unloading,
storing and issuing.

 Instead of counting small-size purchase or manufactured parts received in loose condition,

the quantity may be ascertained by weight.
 Items like casting on arrival can be made in to standard skid or pallet loads.
 Handling ware items nuts bolts etc can be obtained in cartons of standard quantities.
 Storing and handling may be combined by using shelf trolleys or pallet box.
 Arrange with the suppliers to dispatch the goods on skids or pallets in standard unit of issue.
6.7. Factors for Selection Materials Handling Management
The selection of the Equipment for an Organization depends up on
a. The nature of the material to be handled
b. Whether they are in loose condition in cases drums, bottles, cartons etc.
c. Quantity involved
d. Distance to be covered
e. Facilities available for the use of the equipment
f. Frequency of movement etc.
6.8. Objectives of a Good Materials Handling Management
i. Reduction in Wastage of Machine Time
Proper material handling system would ensure regular supply and distribution of raw material
and finished product. This will not create the problem of idling of machine and eliminate
problems of wastage of machine time.
ii. Reduction in Manufacturing Cycle Time
Keeping the loading and unloading time of machine at minimum enables the completion of
manufacturing cycle at reasonably short time.
iii. Avoiding Disruption in Production Schedule

In mass production system, all parts, or materials must come in the assembly line in correct
quantity and at precisely the right time to avoid risk of shut down.
iv. Safety and Safe Working Conditions
Correctly designed material handling system enables utilization of proper material handling
device and training workers in safe material handling practice. It is tangible saving in reduce
insurance, rates, payment of compensation and boost to worker’s moral.
v. Customer Satisfaction
Regular market supplies, by avoiding disruption in production schedule shortening

manufacturing cycle time, timely deliveries lead to customer’s satisfaction a key to business
success.
vi. Enhancing Productivities and Avoid Higher Costs
Efficient materials handling system results in reduction in cost through various steps discussing
above and results in higher productivities.
6.9. Types of Materials Handling Equipment
The following are the material handling equipments commonly used in stores: they are two
categories:
 Manual
 Mechanical
1. Two-wheel Hand Truck or Sack: These are suitable for lifting and transporting small
cases, bags, barrels etc.
2. Three or Four Hand Trolley: There are suitable for transporting loose parts, bags etc with
in a limited area.
3. Shelf Trolley: These have swivel wheels and can be used for feeding the assembly line
from finished part stores if forklift and pallet box cannot be used or if the quantity involve in
small.

4. Lift Trucks: These are suitable for transporting materials on skid platform or in pallet box
with in the workshop. The track is pushed below the platform or pallet box and by operating a
level the upper portion of the truck is raised to a height of 3 or 4 cm.
5. Trolleys on Rails: Narrow or wide rails may be laid accordingly to the type of load to be
carried and the space available. This method is particularly useful where forklift cannot
operate.
6. Small Mobile Jib Cranes: These are suitable for lifting and unloading materials of
medium weight within workshops.
7. Large Mobile Jib Cranes: These are available with pneumatic tyres or caterpillar wheels
and are suitable for unloading open wagons, Lorries and transporting heavy items within the
factory compound. The length of the jib and the capacity are factors to be considered in
selecting the crane.
8. Overhead Travelling Cranes: These are suitable for loading and unloading Lorries and
open wagons and also for sorting out stacking or shifting heavy materials with in the crane
range.
9. Gantry Cranes: These are cranes operated from a fixed position and used only for loading
and unloading.
10. Ramp: Ramps are used for loading and unloading. There are three types of ramps;
 Fixed,
 Movable, and
 Detachable
11. Chute: Chute can be used in the stores for movement of goods from a higher position to a
lower position. Chute can be made from wood or metal.
12. Roller Conveyer: Roller conveyer can be used along with tote pans for moving light
components and with flat pallets for moving heavy components between the shop and the
stores.
13. Tripod Stand: Where crane facilities are not available, a tripod stand with block and
tackle is used for unloading and loading heavy equipment. The poles used should be adequate
height and strength.

14. Forklift:
Activity 6.3
 Write the objectives of good materials handling management? --------------------------------
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 Compare and contrast manual and mechanical material handling equipments? ------------
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 Discuss some of storage materials handling equipments? --------------------------------------
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6.10. Storage Equipment
It is a general rule that as far as possible materials should not be left on the floor but must be
stored on suitable equipment to prevent deterioration, to save storage space and to facilitate
location and easy handling. The type of equipment to be used depends upon the nature of the
materials to be stored, the size and the quantity. The various types of equipment in general use
are bins, racks, pallets, skid plat forms, etc.
Bin
Bin is storage equipment with partitions for keeping small items. Each division in a bin is
called a pigeon-hole. Generally only one item is stored in a pigeon-hole. When bins with large
size pigeon-holes are already in existence, good quality cardboard boxes may be used to store
more than one item.
Collapsible steel bins are nowadays receiving preference over the gird wooden ones. A part
from the fact that, these are easy to dismantle and assemble their shelves and partitions can be
adjusted to requirements and they are free from fire hazard. They have longer life and are
therefore economical in the long run. All the bins in a store should be of uniform height in
order to have a harmonious appearance.
Rack
Rack is an open type of storage equipment for keeping bulky materials. 120cm or 100 cm
length 60cm depth and 300cm height are convenient dimensions for general purpose racks
units. The number of shelves will depend upon the type of materials to be quantity involved,

etc. The racks can also be built in to rows of any lengths. Special types of racks are used for
jigs and fixtures, steel bears, metal sheet, tyres, etc.
Flat pallet
These are made of either wood or metal depending upon the load they are expected to carry.
They can be used for stacking heavy items like motors, pumps, etc., on pallet racks; vertical
storage of oil drums stacking tote pans, etc.
Post pallet
These can be stacked one over the other and used for storing fairly large size commodities
including large size jigs and fixtures which are not likely to fall out of the sides when moved.
Box pallet
These are generally made of angle iron frame, wire mesh, steel sheet bottom and cup-shaped
feet to facilitate stacking. These pallets are used for storing large quantities of medium size
components, preferably one item in a pallet and issuing them in pallet loads. The pallets can
be stacked one over the other to save storage space but the disadvantage is that very often it is
necessary to break the stack to get required pallet and materials. The pallet also is used for
transporting components from one place to another. However, it must be mentioned that box
pallets are advantageous only if issues can be made in pallet loads.
Tray pallet
Tray pallets are not designed for stacking one over the other but for placing on skeleton angle
iron frames (know as pallet rack). The advantage of this method of storing is that any desired
pallet can be removed without disturbing the others.
Skid platform
The use of this is similar to that of flat pallets but it has the added advantage of stacking one
over the other.
6.11. Material handing equipments
Broadly material handling equipment’s can be classified into two categories, namely: (a)
Fixed path equipments, and (b) Variable path equipments.

(a) Fixed path equipments which move in a fixed path. Conveyors, monorail devices, chutes
and pulley drive equipments belong to this category. A slight variation in this category is
provided by the overhead crane, which though restricted, can move materials in any manner
within a restricted area by virtue of its design. Overhead cranes have a very good range in
terms of hauling tonnage and are used for handling bulky raw materials, stacking and at times
palletizing.
(b) Variable path equipments have no restrictions in the direction of movement although their
size is a factor to be given due consideration trucks, forklifts mobile cranes and industrial
tractors belong to this category. Forklifts are available in many ranges, they are maneuverable
and various attachments are provided to increase their versatility.
Material Handing Equipments may be classified in five major categories.
A. Conveyors
Conveyors are useful for moving material between two fixed workstations, either
continuously or intermittently. They are mainly used for continuous or mass production
operations—indeed, they are suitable for most operations where the flow is more or less
steady. Conveyors may be of various types, with rollers, wheels or belts to help move the
material along: these may be power-driven or may roll freely. The decision to provide
conveyors must be taken with care, since they are usually costly to install; moreover, they are
less flexible and, where two or more converge, it is necessary to coordinate the speeds at
which the two conveyors move.
B. Industrial Trucks
Industrial trucks are more flexible in use than conveyors since they can move between various
points and are not permanently fixed in one place. They are, therefore, most suitable for
intermittent production and for handling various sizes and shapes of material. There are many
types of truck petrol- driven, electric, hand-powered, and so on. Their greatest advantage lies
in the wide range of attachments available; these increase the trucks ability to handle various
types and shapes of material.
C. Cranes and Hoists

The major advantage of cranes and hoists is that they can move heavy materials through
overhead space. However, they can usually serve only a limited area. Here again, there are
several types of crane and hoist, and within each type there are various loading capacities.
Cranes and hoists may be used both for intermittent and for continuous production.
D Containers
These are either ‘dead’ container (e.g. Cartons, barrels, skids, pallets) which hold the material
to be transported but do not move themselves, or ‘live’ containers (e.g. wagons, wheelbarrows
or computer self-driven containers). Handling equipments of this kind can both contain and
move the material, and is usually operated manually.
E. Robots
Many types of robot exist. They vary in size, and in function and maneuverability. While
many robots are used for handling and transporting material, others are used to perform
operations such as welding or spray painting. An advantage of robots is that they can perform
in a hostile environment such as unhealthy conditions or carry on arduous tasks such as the
repetitive movement of heavy materials.
The choice of material-handling equipment among the various possibilities that exist is not
easy. In several cases the same material may be handled by various types of equipments, and
the great diversity of equipment and attachments available does not make the problem any
easier.
In several cases, however, the nature of the material to be handled narrows the choice.
Activity 6.4
Discuss fixed path equipments, and Variable path equipments. -------------------------------------
-------------------------------------------------------------------------------------------------------------
What are the basic guide lines of effective utilization of material handling equipments? --------
--------------------------------------------------------------------------------------------------------------
Discuss plant layout and material handling relationship? -------------------------------------------
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6.12. Guidelines for Effective Utilization of Material Handling Equipments
The following guidelines are invaluable in the design and cost reduction of the materials
handling system:
o As material handling adds no value but increases the production cycle time, eliminate
handling wherever possible. Ideally there should not be any handling at all!
o Sequence the operations in logical manner so that handling is unidirectional and
smooth.
o Use gravity wherever possible as it results in conservation of power and fuel.
o Standardize the handling equipments to the extent possible as it means
interchangeable usage, better utilization of handling equipments, and lesser spares
holding.
o Install a regular preventive maintenance programme for material handling
equipments so that downtime is minimum.
o In selection of handling equipments, criteria of versatility and adaptability must be
the governing factor. This will ensure that investments in special purpose handling
equipments are kept at a minimum.
o Weight of unit load must be maximum so that each ‘handling trip’ is productive.
o Work study aspects, such a elimination of unnecessary movements and combination
of processes should be considered while installing a material handling system.
o Non-productive operations in handling, such as slinging, loading, etc., should be kept
at a minimum through appropriate design of handling equipment. Magnetic cranes for
scrap movement and loading in furnaces combination of excavators and tippers for
ores loading and unloading in mines are examples in this respect.
o Location of stores should be as close as possible to the plant which uses the materials.
o This avoids handling and minimizing investment in material handling system.
o Application of OR techniques such as queuing can be very effective in optimal
utilization of materials handling equipments.
o A very important aspect in the design of a material handling system is the safety
aspect.

o The system designed should be simple and safe to operate.

o Avoid any wasteful movements-method study can be conducted for this purpose.
o Ensure proper coordination through judicious selection of equipments and training of
workmen.
6.13. Relationship between Plant Layout and Material Handling
Various factors which determine the number and size of stores includes the following
 Number of items to be stored
 Types of items stored
 Shape of items
There is a close relationship between plant layout and material handling. A good layout
ensures minimum material handling and eliminates re handling in the following ways:
1. Material movement does not add any value to the product so, the material handling should
be kept at minimum though not avoid it. This is possible only through the systematic plant
layout. Thus a good layout minimizes handling.
2. The productive time of workers will go without production if they are required to travel
long distance to get the material tools, etc. Thus a good layout ensures minimum travel for
workman thus enhancing the production time and eliminating the hunting time and travelling
time.
3. Space is an important criterion. Plant layout integrates all the movements of men, material
through a well designed layout with material handling system.
4. Good plant layout helps in building efficient material handling system. It helps to keep
material handling shorter, faster and economical. A good layout reduces the material
backtracking, unnecessary workmen movement ensuring effectiveness in manufacturing.
Thus a good layout always ensures minimum material handling.

Chapter Summary
Materials handling management is among many factors that contribute to improve a
company’s performance. The relevance of materials handling stems from the intrinsic
relationship that it has with production flow. When it presents an imbalance, there is forma-
tion of extra stock or rupture in supply. When the flow does not have enough velocity, transit
time is long and the system is not capable of serving the customers when they need it.
It is well understood that material handling improvement may have positive effects over
production. However, it is not only production, but the way the employees see the new
situation. When the perception is favorable, the benefits are possible; if not, behavioral issues
can emerge. The determination of a material handling system involves both the selection of
suitable material handling equipment and the assignment of material handling operations to
each individual piece of equipment (Sujono & Lashkari, 2006). Hence, according to Sujono &
Lashkari (2006) material handling system selection can be defined as the selection of material
handling equipment to perform material handling operations within a working area
considering all aspects of the products to be handled. In this context it is important to mention
that, in this study, only the selection of the material handling. Broadly material handling
equipment’s can be classified into two categories, namely: (Fixed path equipments and
Variable path equipments. There is a close relationship between plant layout and material
handling. A good layout ensures minimum material handling and eliminates re handling
Self Test Exercises

1. Define material handling
2. Mention any four objectives of material handling.
3. Mention any four principles of material handling.
4. What do you mean by “Equipment Utilization Ratio”?
5. Mention some of the fixed path equipments.
6. Mention some of the valuable path equipments.
7. Explain the objectives of material handling.

8. Explain the principles of material handling.

9. How do you evaluate the material handling system?
10. What are the relationship between plant layout and material handling?
Section C
1. Discuss the factors to be considered while selecting material handling equipment.
2. Discuss the different material handling equipments.
3. Discuss the guidelines for effective utilization of material handling equipments.

Chapter seven
7. Warehouse safety and security

Objectives
After completion of this chapter the students will be able to:-
 Explain Warehousing, Storage and Security
 Discuss Storage & Handling of Materials
7.1. Introduction
An inefficient and poorly organized warehouse is an irritant to user departments and

Stores personnel, a good layout and good storage methods shall yield the following benefits
 Ready accessibility of major materials, permitting efficient services to user
departments
 Efficient space utilization and flexibility of arrangement
 A reduced need for materials handling equipment
 Minimization of material deterioration and pilferage
 Ease of physical counting resulting in faster stock verification/stocktaking
In view of importance of physical operation of Stores, separate Chapter on Materials
Preservation, Material Handling and Safe Operations (Causes of Accidents and Precautions
for Prevention) is added to this manual. However following issues may also be taken care
while stacking the materials:
(a) Materials in Stores, under no circumstances, shall be stacked on the floor of storehouses/
open yards. In case stacking on floor of heavy and voluminous materials become unavoidable,
adequate and appropriate dun age shall be used so that an air space of at least 50 mm is
available above floor up to the bottom of materials stacked, to facilitate cleaning, dusting and
control of micro-organism. Same care shall be taken while stacking the materials in the open
yard. The damage shall further facilitate safe loading and unloading operations (removal and
fixing of slings shall be safe and convenient. Even loading and unloading through forklift
truck shall e very convenient).

(b) The size and arrangements for access to such stacks should be such to permit easy visual
inspection from all around for ascertaining condition and quantum of the stock as also for
cleaning/dusting and preservation activities.
(c) Materials stacked in open and prone to deterioration due to atmospheric conditions shall
be properly and securely covered with tarpaulins.
(d) Materials on storage rack or open yard shall be stacked in such a way that counting of
quantity could be done without any movement of materials to facilitate faster stocktaking/
stock verification.
7.2. Security of Storehouses & Materials:
7.2.1. Security of Buildings and Stockyards:
(a) Storehouses shall be of reasonably good constructions. Door provided should be restricted
to the minimum number necessary for efficient operations and capable of being securely
fastened and locked. The normal practice shall be to provide roller shutter. For security
reasons such big doors shall be opened only when there is need to allow entry of vehicles or
handling equipment. A small door shall be provided separately alongside the roller shutter so
that employee can have easy access during time when it is not necessary to have the main
door opened. Such small doors shall have closing and locking facilities from inside.
(b) All windows and skylights must be capable of being securely fastened. In case of any
apprehension of unauthorized entry (e.g. where the windows over look a public highway),
additional protection in the form of MS bars or wire mesh may be advisable.
The internal layout shall usually be so arranged to provide an Issue Counter or issue bay
segregated from the main store area and, wherever possible, enclosed. Those visiting stores
for issue of material should be restricted at Issue Counter. Stockyards should be surround by
an adequate fence with locking gate and the number of gates should be restricted to what is
necessary for effective working. The recommended fencing consists of four feet brick wall
and above these four feet barbed wire fixed with angles grouted on the wall. Height of the
fencing may largely depend upon the local conditions. While deciding the construction of

wall Security Department must be consulted. If the open yards are big and spread over a
considerable area, provision for security watch-towers may be considered.
(a) There shall be proper lighting arrangements both outside storehouses and open yards.
Subject to size of the yard, conventional lighting shall best be placed round the perimeter,
arranged to shine inward. For larger stockyards, modern system of tower mounted floodlights,
the type found in the stadiums, may also be considered.
(b) Storage area shall be properly leveled and connected with drains and water line and shall
be away from hazardous area (area where there are chances of fire or explosion)
Access to premises:
i) The Custodian shall be responsible for the care and custody of all materials from the time of
delivery until the time of issue. He therefore shall have the authority not only to exercise
supervision over his own staff, but also over all other persons who have occasions to visit the
premises for any purpose whatsoever.
ii) In the interest of security, access to storehouses and stockyards must be strictly limited.
Apart from storehouse employees themselves, people collecting goods should not normally be
allowed to enter storage area, but kept on the public side of the Issue
Counter, drivers and other making deliveries confined to receipt dock.
iii) Similarly, in a stockyard, personnel not employed in the yard should not be admitted
unless they are in charge of transport, and then only under the supervision of member of the
Stores staff. Some time it may become necessary to take members of user departments to the
storage area for identification of materials or issue of heavy/larger quantity materials, in these
situations an authorized representative of Custodian or he himself shall accompany them.
Segregation of pilfer able items
It shall be prudent to take extra security precautions in respect of ‘attractive’ goods, which are
generally recognized as being especially subject to pilferage (the type of articles referred to in
the paragraph below on ‘marking’ which have domestic use and ready market for disposal).
Separate lockable enclosures or cupboards are often provided inside the main stores for
commodities of this kind, and they are placed under the care of a storekeeper who is entrusted
with the keys and accepts responsibility for safe keeping of the stock.

Marking the Stores:

In order to minimize the risk of pilferage, it shall be advisable to mark stock items with the
name of the organization or another convenient symbol of identification so that, if anything is
stolen, it may subsequently be traced and the mark will serve to prove that the article is the
Corporation’s property. Wherever possible, Purchase Department shall be asked to ensure that
requirements of marking are included in the scope of purchase order and the supplier does the
work. In case this is not possible, sometime, the marking may be undertaken in the
storehouse. This marking is done for the items suitable for domestic use or the lucrative items,
which have ready market (items like hand tools, electric lamps, fluorescent tubes, crockery
and cutlery, towels etc. For valuable portable equipment such as micrometers, surveying
instruments, ammeters etc., and for such items as vehicle tyres and batteries, the principle of
marking may well be carried. As far as possible, it is further to be ensured that fresh issue of
such items are made only when the worn outs or those whose useful life has expired, are
return back to stores.
Preservation of Materials
Many of the items, especially insurance spares may be required to be kept in stores for many
years. It shall therefore be essential that proper methods of storage and preservation be
applied so that items do not deteriorate, loose some of their properties and become unusable
due to atmospheric conditions and biological elements.
Economical utilization and conservation of resources and available materials, stores or
equipment are of paramount importance for the progress of the organization. Since a large
number and range of items shall be stores at Corporation’s power stations, it may not be
possible to lay down procedure of preservation of individual items.
Attempts have, however been made to cover procedure for certain important categories of
materials. These are general methods of preservation and any specific instruction from
manufactures for preservation shall additionally be followed.
Proper preservation shall be ensured by storekeeper/custodian who shall work under guidance
of user departments. User departments shall also extend full cooperation in this regards and
visit stores from time to time to assess implementation and advise in the matter.

7.3. Factors Influencing Deterioration:
The stores/equipments are made of particular materials with specific characteristics. With
passage of time and sometime due unfavorable storage conditions, those characteristics of
qualities tend to change or deviate from their properties and making they sometime unfit for
use. This change in characteristics of stores is referred to as deterioration. Due to
deterioration, materials or stores manufactured their-from, may not be able to fulfill intended
functions. Provision of proper storage conditions for items, treating them with preservatives
and packing them properly reduces considerably the rate of deterioration.
The agencies, which cause deterioration, may broadly be classified a) Biological and b) Non-
biological.
Damages due to biological process:
Damages are caused to stores by organism such as white ant, mildew, rat etc. These are living
organism and this type of damages is usually referred as biological damages.
Items like wooden poles, bamboo, furniture, stationery, textiles, leather goods, timber, food
grains etc. are prone to loss by these agents of deterioration.
Preventive measures:
Preventive measures consist essentially either creating a barrier between causes of
deterioration and the article by using a chemical in the stores house, where such materials are
stored. The treatment generally carried out (a) Immersion of bamboo and wood poles in a
mixture of creosote and mustard oil for a period of at least twelve hours.
Linseed oil may be used when timber stores are to be treated. (b) Injection of some oil
mixture like creosote and mustard oil in to hollow of timbers followed by swabbing of the
entire outer surface. c) Painting and washing of timber stores.
(a) White Ants
The termites are white -ants, as they are commonly known, are insects that attack and destroy
anything that is of plant origin such as bamboo, timber etc. The food of the termite is
anything, which is of vegetable origin. But it does, however, even destroy woolen stores.

White Ant is usually very active during the monsoon and prefers moist soil and may attack
stores in contact with walls or roof or ground. The presence of white ants is noticeable by
mud adhering to damage portion of stores.
Preventives:
No curative measure is known in the case of white ants and all treatments are preventive and
protective in nature. They may be summarized as under:
(i) Stores should be kept up the ground at least 12” high or on dunnage made out of metal or
any materials not susceptible to white ant damage.
(ii) The floor of go down and storehouse should be made of concrete. All cracks should be
repaired promptly
(iii) Stores should not be allowed to touch the roof or walls. Timber should be treated with oil
mixture such as creosote up to a height of 2 feet from the ground.
(b) Rot and Mildew
Rot and mildew are names given to organism belonging to the plant kingdom, which is also
the cause of considerable damages to stores. Mildew can be defined as the low form of a plant
known as Fungi. The rot may, in general be defined as the state of deterioration of stores
caused by microorganism called bacteria. Both of them attack easily all stores, which are of
plant origin i.e. contains cellulose of some form or other.
Rot and Mildew generally take place during monsoon and in places, which are damp and wet.
Symptoms of Mildew damage are:
(i) The presence of musty smell in items of vegetable origin and ammoniac smell in animal
products.
(ii) De-colorization of stores.
Preventive Measures
Following are the preventive measures which help in minimize the damages by rot and
mildew
All god own and storehouses must be opened daily to allow free ventilation particularly
during the monsoon season.

(i) Stores must keep on dunnage, away from walls and off the ground. They must not touch
the roof.
(ii) In case of temporary shelters, the attached covers must be folded and the ends must be
tagged off the ground. Bales of cloth or gunny bags must be kept at some distance from each
other.
(iii) Stores should not be packed and stacked while wet or damp.
(iv) Stocks should be frequently turned over.
(v) Stores must be inspected frequently and should be immediately treated when any damage
is noticed.
Curative Measures
There are a few curative measures, which are of general application. Some proved more
useful and are mentioned below:
(i) Damaged stores should be exposed to the sun for few days with a frequent turnover.
(ii) An insecticide may be used or sprayed on the damaged portion.
(iii) Oils and chemicals used to kill insect pests are effective against rot and mildew also.
Before any treatment is given, the damaged stores should be segregated from the uninfected
one.
(c) Rats
(i) Rats and mice damage stores either by feeding on them, utilizing them as nesting materials
or for sharpening their teeth. All stores except those made from metal, stone, porcelain and
glass are liable to be damaged. Rats also act as carriers of some diseases.
(ii) Rat is extremely suspicious creature. It has well-developed sense organs and very
intelligent in behavior. Due to all these characteristics, there is generally a problem of rat
control. Measures to be taken for preventive damages by rats are:Rat Proofing, and Rat
Destruction.
Rat Proofing: Prevention is better than cure. If proper precautions are taken from the very
beginning of storage, one can protect stores to the maximum extent. This can be done by rat
proofing of god own and keeping the stores, prone to losses by rats, in rate proof containers.
Rat proofing is done before keeping the goods in storehouses.

Rat Destruction-Rat destruction campaign is found to be more effective in indoor area. This
shall be repeated at suitable intervals. Removal of bait shyness, washing of traps with running
water and changing of bait are three main points to be considered. Disposal of catches is also
important as live catches must be killed and disposed off by burning.
The poison baiting is another method of rat destruction.
Anticoagulant i.e. Tomorin, Rodafarin etc. can be dusted on rat runs and rats automatically
get poisoned due to their licking habits.
The rats in storehouse can also be controlled with the help of cats and dogs.
As far as possible both methods should be used concurrently.
Damages due to non-biological causes:
Under this section is included various types of damages not caused by any living organism.
Rusting of iron stores, corrosion, cracking of paints, hardening of rubber, cracking of timber
and such like are common experiences and these are some of the most important types of non-
biological damages to general stores.
Corrosion:
Corrosion relates to deterioration of metal surfaces due to reason other than mechanical ones
and deliberate destruction of iron parts and even pitting of aluminum utensils are example of
corrosion.
Corrosion is usually caused when one of more of following conditions prevails:
(i) When materials are exposed to harmful gases in the industrial town.
(ii) When materials are in continuous contact with water in the presence of air.
(iii) When materials are exposed to solutions of acids, alkalis or salts.
Rust
Rust is compounding formed by the oxidation of iron in the presence of moisture. The term
“Rust” is restricted to iron and steel only. While the term “Corrosion” is applicable to all
metals.
Preservation:
Applying some preservatives to the metal surface, by making a barrier between the
atmosphere and the metal, prevents corrosion damage to metals. Before a preservative is

applied, the metal surface must be cleaned and free from grease. The surface should be de-
rusted, if it is corroded and must be made completely dry.
Cleaning and degreasing
Washing with water, scrubbing with rags or rubbing with sand paper or emery cloth may
carry out cleaning and degreasing. Cleaning and degreasing may also be done by chemical
methods such as:
(i) Dissolving the grease in chemicals such as carbon tetrachloride, kerosene oil or white
spirit.
(ii) Immersion of dirty and greasy articles in solution of caustic soda or soda ash.
However, before the above cleaning methods are employed, the rust and scales may first be
removed by mechanical methods such as rubbing with emery cloth/paper or steel wire brush.
Kerosene oil may be used as rust loosening. After the store has been cleaned and rust free
stores should be thoroughly dried by one of following methods before preservative coating is
applied.
 Blow hot air.
 Blowing dry compressed air, and
 Wiping with clean rags
If none of the above methods are possible, it may be dried in the hot sun (if the weather is
clear).
Preservative coating
Metals other than iron and steel do not normally require any protective coating. In case they
are to be kept under corrosive conditions for log period, they should be given a protective
coating of Mineral Jelly, Beeswax or grease and wrapped in grease resisting paper. Before a
preservative method is to be adopted, it should be first ascertained if the protection to be given
is for short term or long term. In case a short protection, the preservative can be easily
removed and some cases do not interfere with the serviceability of the stores.
Some of these preservatives are mineral oils and greases and mineral jelly. In such cases,
unless the value of the stores demands stringent controls, the cost of the preservatives is to be
given due weight age. If the items are very huge, even waste oil (from garage) could be

explored for use. After application of the preservative the stores should be wrapped in grease
resisting paper or covered with tarpaulin. Some methods for long term protection are:
a) Painting
Paints, lacquers, varnishes and enamels may be used to protect metallic surfaces against
corrosion. On the clean surface there are two coats of a primer (red oxide/red lead) is applied.
The primer is a rust inhibitor. Over the primer coat, an undercoat is applied which helps the
primer coat remain dry and provide a satisfactory adhesion on the finishing paint.
In less corrosive, undercoat may be flopped, when there is severe lack of time and labor, even
the elimination of finishing may be considered.
Chapter Summary
A good layout and good storage methods shall yield the organization a benefits of Ready
accessibility of major materials, permitting efficient services to user departments, Efficient
space utilization and flexibility of arrangement, A reduced need for materials handling
equipment, Minimization of material deterioration and pilferage, Ease of physical counting
resulting in faster stock verification/stocktaking. Storehouses shall be of reasonably good
constructions. Door provided should be restricted to the minimum number necessary for
efficient operations and capable of being securely fastened and locked.
Economical utilization and conservation of resources and available materials, stores or

equipment are of paramount importance for the progress of the organization. Since a large
number and range of items shall be stores at Corporation’s power stations, it may not be
possible to lay down procedure of preservation of individual items.
The stores/equipments are made of particular materials with specific characteristics. With
passage of time and sometime due unfavorable storage conditions, those characteristics of
qualities tend to change or deviate from their properties and making they sometime unfit for
use. This change in characteristics of stores is referred to as deterioration. Due to
deterioration, materials or stores manufactured their-from, may not be able to fulfill intended

functions. Provision of proper storage conditions for items, treating them with preservatives
and packing them properly reduces considerably the rate of deterioration. Damages are caused
to stores by organism such as white ant, mildew, and rat.
Self Test Review Questions.
1. What is the advantages of good lay out and security of sores.

2. Explain the preconditions or factors that have to be considering to maintaining
effective store yards and security buildings.
3. Discuss the main factors influencing to deteriorations of materials in store.
4. Explain the prevention measures and techniques to deterioration in store.

References
1. Ahuja, K.K., Production Management, Satish Kumar Jain Publishers, Shahdara, Delhi,
1993.
2. Burton, Jo. A, Effective Warehousing, London, Macdonald and Evans Limited, 1981.,3rd
ed
3. Bwersox, Donald J. et al, Logistical Management: A Systems Integration of Physical

Distribution, Manufacturing Support, and Materials Procurement, 3rd ed. New York,
Macmillan Pub. Co., 1986.
4. Carter, R.J., Stores Management and Related Operation,., Macdonald and Evans Ltd.,
1985, 2nd ed
5. Compton, H.K., Supplies and Materials Management, 2nd ed., London, Macdonald and
Evens Ltd., 1979.
6. Dr. J P Saxena, Warehouse Management and Inventory Control, Vikas Publishing Pvt.
Ltd. 2003
7. Fiseha Afework, Stores Management and Materials Handling, AAUU, July 2004.
8. Gattorna, John (editor), Handbook of Physical Distribution Management, 3rd ed.,
England, Gower Pub. Co. Ltd., 1983.
9. Gupta, DR and Rajput, RK, Purchasing and Storekeeping, Tata McGraw-Hill Pub. Co.
Ltd, 1982.
10. Morrion, Alex, Storage and Control of Stock, 3rd ed., London, Pitman Publishing
Limited, 1981.
11. SECOND EDITION, production and operations management, sanil kumar and
N.SURESH
12. Shapiro. Roy d., and Heskett, James L. Logistics Strategy: Cases and Concepts, NY, west
Pub. Co. 1985.

13. Sop, David and Morrison, Alex, Storage and Supply of Materials, 5th ed., London,
Pitman, 1991.
14. Supplementary References

15. Various websites deal with the subject.

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Warehouse And Materials Handling Management LSCM3041

1. Overview of Warehouse and Material Handling

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Storekeeping is the function of receiving, storing and issuing of materials. In almost

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1.2. Stores Management

 Identify the major role of stores management to economic development

 What are the major duties and responsibilities of store keeper?

 Explain the major functions of store management.

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1.3. Duties and Responsibility of Store keeper

1.2.2 Objectives, Responsibilities and Functions of Stores

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iii. Issue of materials & maintenance of records:

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ix. Inventory control:

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 Arranging dispatch of materials to out-station suppliers or other units of the

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Function of Store Management

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 Keeping in an orderly fashion

1.6. Classification of Materials

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ABC analysis procedure

Examples of ABC analysis

#10286 20 1000 $90,000 90,000 38.8% A

# 12572 50% 600 1417 8,502 3.7% C

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Policies that may be based on ABC analysis include the following

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frequency schedule changes in requirements requirements

Other Method Of Analysis

VED (Vital, Essential, Desirable) Analysis

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1. What is difference between SDE and HML analysis?

2. Clearly distinguish ABC classification and others methods of classification of

3. Do all inventories in a warehouse have similar value in your organization?

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Summary of selective Inventory management

ABC Consumption value Controlling raw material & work in

VED Criticality Controlling the inventory level of spare

SDE Scarcity Controlling the inventory of scarce

HML Cost Controlling the over consumption at

FNSD Consumption or Controlling obsolescence

XYZ Closing inventory value Controlling over stocking and under

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III) Classification according to Manufacturing Process

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director of director of director of director of director of

Fig.1.2. Position of Stores within Materials Management

Storekeeping is the function of receiving, storing and issuing of materials. In almost

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2. Stock Receipts/Receiving Section

2.1. Stock Receipts

2.1.1. Types of Receiving Section