A

Project Report on
“INVENTORY MANAGEMENT”

SUBMITTED BY:
Vanshaj Lamba

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 Table of Contents

INTRODUCTION INVENTORY MANAGEMENT

SIEMENS

OBJECTIVES AND NEED OF SUPPLY CHAIN MANAGEMENT

ACTIVITIES/FUNCTIONS OF SCM IN SIEMENS

INVENTORY CONTROL MANAGEMENT

WAREHOUSE

TRANSPORTATION

DISTRIBUTION

PACKAGING AND LABELLING

CONCLUSION

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 INVENTORY MANAGEMENT

1. INTRODUCTION

DEFINATION AND MEANING

Inventory is a list of goods and materials, or those goods and materials themselves, held
available in stock by a business. Inventory are held in order to manage and hide from the
customer the fact that manufacture/supply delay is longer than delivery delay, and also to
ease the effect of imperfections in the manufacturing process that lower production
efficiencies if production capacity stands idle for lack of materials.

The reasons for keeping stock

All these stock reasons can apply to any owner or product stage.

Buffer stock is held in individual workstations against the possibility that the upstream
workstation may be a little delayed in providing the next item for processing. Whilst some
processes carry very large buffer stocks, Toyota moved to one (or a few items) and has now
moved to eliminate this stock type.

Safety stock is held against process or machine failure in the hope/belief that the failure can
be repaired before the stock runs out. This type of stock can be eliminated by programmes
like Total Productive Maintenance

Overproduction is held because the forecast and the actual sales did not match. Making to
order and JIT eliminates this stock type.

Lot delay stock is held because a part of the process is designed to work on a batch basis
whilst only processing items individually. Therefore each item of the lot must wait for the
whole lot to be processed before moving to the next workstation. This can be eliminated by
single piece working or a lot size of one.

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Demand fluctuation stock is held where production capacity is unable to flex with demand.
Therefore a stock is built in times of lower utilisation to be supplied to customers when
demand exceeds production capacity. This can be eliminated by increasing the flexibility and
capacity of a production line or reduced by moving to item level load balancing.

Line balance stock is held because different sub-processes in a line work at different rates.
Therefore stock will accumulate after a fast sub-process or before a large lot size sub-process.
Line balancing will eliminate this stock type.

Changeover stock is held after a sub-process that has a long setup or change-over time. This
stock is then used while that change-over is happening. This stock can be eliminated by tools
like SMED.

Where these stocks contain the same or similar items it is often the work practice to hold all
these stocks mixed together before or after the sub-process to which they relate. This 'reduces'
costs. Because they are mixed-up together there is no visual reminder to operators of the
adjacent sub-processes or line management of the stock which is due to a particular cause and
should be a particular individual's responsibility with inevitable consequences. Some plants
have centralized stock holding across sub-processes which makes the situation even more
acute.

The basis of Inventory accounting

Inventory needs to be accounted where it is held across accounting period boundaries since
generally expenses should be matched against the results of that expense within the same
period. When processes were simple and short then inventories were small but with more
complex processes then inventories became larger and significant valued items on the balance
sheet. This need to value unsold and incomplete goods has driven many new behaviours into
management practise. Perhaps most significant of these are the complexities of fixed cost
recovery, transfer pricing, and the separation of direct from indirect costs. This, supposedly,
precluded "anticipating income" or "declaring dividends out of capital". It is one of the
intangible benefits of Lean and the TPS that process times shorten and stock levels decline to
the point where the importance of this activity is hugely reduced and therefore effort,
especially managerial, to achieve it can be minimised.

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LIFO V/S FIFO

When a dealer sells goods from inventory, the value of the inventory reduces by the cost of
goods sold(CoG sold). This is simple where the CoG has not varied across those held in stock
but where it has then an agreed method must be derived. For commodity items that one
cannot track individually, accountants must choose a method that fits the nature of the sale.
Two popular methods exist: FIFO and LIFO accounting (first in - first out, last in - first out).
FIFO regards the first unit that arrived in inventory the first one sold. LIFO considers the last
unit arriving in inventory as the first one sold. Which method an accountant selects can have
a significant effect on net income and book value and, in turn, on taxation. Using LIFO
accounting for inventory, a company generally reports lower net income and lower book
value due to the effects of inflation. This generally results in lower taxation. Due to LIFO's
potential to skew inventory value, UK GAAP and IAS have effectively banned LIFO
inventory accounting.

SUPPLY CHAIN MANAGEMENT

A supply chain is a network of facilities and distribution options that performs the functions of
procurement of materials, transformation of these materials into intermediate and finished
products, and the distribution of these finished products to customers. Supply chains exist in
both service and manufacturing organizations, although the complexity of the chain may vary
greatly from industry to industry and firm to firm.

Supply chain management is typically viewed to lie between fully vertically integrated
firms, where the entire material flow is owned by a single firm and those where each channel
member operates independently. Therefore coordination between the various players in the
chain is key in its effective management. Cooper and Ellram [1993] compare supply chain
management to a well-balanced and well-practiced relay team. Such a team is more competitive
when each player knows how to be positioned for the hand-off. The relationships are the
strongest between players who directly pass the baton (stick), but the entire team needs to make
a coordinated effort to win the race.

Below is an example of a very simple supply chain for a single product, where raw
material is procured from vendors, transformed into finished goods in a single step, and then

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transported to distribution centers, and ultimately, customers. Realistic supply chains have
multiple end products with shared components, facilities and capacities. The flow of materials
is not always along an arborescent network, various modes of transportation may be
considered, and the bill of materials for the end items may be both deep and large.

To simplify the concept, supply chain management can be defined as a loop: it starts
with the customer and ends with the customer. All materials, finished products, information,
and even all transactions flow through the loop. However, supply chain management can be a
very difficult task because in the reality, the supply chain is a complex and dynamic network
of facilities and organizations with different, conflicting objectives.

Supply chains exist in both service and manufacturing organizations, although the
complexity of the chain may vary greatly from industry to industry and firm to firm.

Unlike commercial manufacturing supplies, services such as clinical supplies planning

are very dynamic and can often have last minute changes. Availability of patient kit when
patient arrives at investigator site is very important for clinical trial success. This results in
overproduction of drug products to take care of last minute change in demand. R&D
manufacturing is very expensive and overproduction of patient kits adds significant cost to the
total cost of clinical trials. An integrated supply chain can reduce the overproduction of drug
products by efficient demand management, planning, and inventory management.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing

organizations along the supply chain operated independently. These organizations have their
own objectives and these are often conflicting. Marketing's objective of high customer service
and maximum sales dollars conflict with manufacturing and distribution goals. Many
manufacturing operations are designed to maximize throughput and lower costs with little
consideration for the impact on inventory levels and distribution capabilities. Purchasing

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contracts are often negotiated with very little information beyond historical buying patterns.
The result of these factors is that there is not a single, integrated plan for the organization---
there were as many plans as businesses. Clearly, there is a need for a mechanism through which
these different functions can be integrated together. Supply chain management is a strategy
through which such integration can be achieved.

Supply Chain Management (SCM) is the process of planning, implementing, and controlling
the operations of the supply chain with the purpose to satisfy customer requirements as
efficiently as possible. Supply chain management spans all movement and storage of raw
materials, work-in-process inventory, and finished goods from point-of-origin to point-of-
consumption.

According to the Council of Supply Chain Management Professionals (CSCMP),

a professional association that developed a definition in 2004, Supply Chain Management

“encompasses the planning and management of all activities involved in sourcing and
procurement, conversion, and all logistics management activities”. Importantly, it also includes
coordination and collaboration with channel partners, which can be suppliers, intermediaries,
third-party service providers, and customers. In essence, Supply Chain Management integrates
supply and demand management within and across companies.

According to Cohen & Lee (1988)

Supply Chain Management is “The network of organizations that are having linkages, both
upstream and downstream, in different processes and activities that produces and delivers the
value in form of products and services in the hands of ultimate consumer.” Thus a shirt
manufacturer is a part of supply chain that extends up stream through the weaves of fabrics to
the spinners and the manufacturers of fibers, and down stream through distributions and
retailers to the final consumer. Though each of these organizations are dependent on each other
yet traditionally do not closely cooperate with each other. An integrated supply chain
management streamlines processes and increases profitability by delivering the right product
to the right place, at the right time, and at the lowest possible cost.

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 According to Ganeshan & Harrison (2001)

Supply Chain Management is a “systems approach to managing the entire flow of information,
materials, and services from raw materials suppliers through factories and warehouses to the
end customer.”

Supply chain event management (abbreviated as SCEM) is a consideration of all possible

occurring events and factors that can cause a disruption in a supply chain. With SCEM possible
scenarios can be created and solutions can be planned.

Some experts distinguish supply chain management and logistics management, while
others consider the terms to be interchangeable. From the point of view of an enterprise, the
scope of supply chain management is usually bounded on the supply side by your supplier's
suppliers and on the customer side by your customer's customers.

Supply chain management is also a category of software products.

2. SIEMENS
SIEMENS is one of the world's largest companies and Europe's largest engineering firm.
Siemens has six major business divisions: Communication and Information; Automation and
Control; Power; Transportation; Medical; and Lighting. Siemens' international headquarters
are located in Berlin and Munich, Germany. Siemens AG is listed on the Frankfurt Stock
Exchange, and has been listed on the New York Stock Exchange since March 12, 2001.
Worldwide, Siemens and its subsidiaries employ 480,000 people in 190 countries and
reported global sales of €87.325 billion in fiscal year 2006
HISTORY

Siemens was founded by Werner von Siemens on October 1, 1847, based on the telegraph he
had invented that used a needle to point to the sequence of letters, instead of using Morse
code. The company – then called Telegraphen-Bauanstalt von Siemens & Halske – opened its
first workshop on October 12.

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In 1848, the company built the first long-distance telegraph line in Europe; 500 km from
Berlin to Frankfurt am Main. In 1850 the founder's younger brother, Sir William Siemens
(born Carl Wilhelm Siemens), started to represent the company in London. In the 1850s, the
company was involved in building long distance telegraph networks in Russia. In 1855, a
company branch headed by another brother, Carl von Siemens, opened in St Petersburg. In
1867, Siemens completed the monumental Indo-European (Calcutta to London) telegraph
line

In 1881, a Siemens AC Alternator driven by a watermill was used to power the world's first
electric street lighting in the town of Godalming, United Kingdom. The company continued
to grow and diversified into electric trains and light bulbs. In 1890, the founder retired and
left the company to his brother Carl and sons Arnold and Wilhelm. Siemens & Halske (S&H)
was incorporated in 1897.

In 1919, S&H and two other companies jointly formed the Osram lightbulb company. A
Japanese subsidiary was established in 1923.

During the 1920s and 1930s, S&H started to manufacture radios, television sets, and electron
microscopes.

Before World War II Siemens was involved in the secret rearmament of Germany. During the
Second World War, like most big companies in Germany at the time, Siemens supported the
Hitler regime, contributed to the war effort and participated in the "Nazification" of the
economy. Siemens had many factories in and around famous extermination camps such as
Auschwitz and used slave labor from concentration camps to build electric switches for
military uses. In one example, almost 100,000 men and women from Auschwitz worked in a
Siemens factory inside the extermination camp, supplying the electricity to the camp

In the 1950s and from their new base in Bavaria, S&H started to manufacture computers,
semiconductor devices, laundry machines, and pacemakers. Siemens AG was incorporated in
1966. The company's first digital telephone exchange was produced in 1980. In 1988
Siemens and GEC acquired the UK defense and technology company Plessey. Plessey's
holdings were split, and Siemens took over the avionics, radar and traffic control businesses
— as Siemens Plessey.

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In 1991, Siemens acquired Nixdorf Computer AG and renamed it Siemens Nixdorf
Informationssysteme AG. In 1997 Siemens introduced the first GSM cellular phone with
colour display. Also in 1997 Siemens agreed to sell the defence arm of Siemens Plessey to
British Aerospace (BAe) and a UK government agency, the Defence Analytical Services
Agency (DASA). BAe and DASA acquired the British and German divisions of the operation
respectively

In 1999, Siemens' semiconductor operations were spun off into a new company known as
Infineon Technologies. Also, Siemens Nixdorf Informationssysteme AG formed part of
Fujitsu Siemens Computers AG in that year. The retail banking technology group became
Wincor Nixdorf.

In February 2003, Siemens reopened its office in Kabul.[3]

In 2004, Siemens took over the mantle of official Formula One timekeeper, replacing TAG
Heuer.

In November, 2005, Siemens signed a 12 year agreement with the Walt Disney Company to
sponsor attractions in its Florida and California parks.

In 2006, Siemens announced the purchase of Bayer Diagnostics, which was incorporated into
the Medical Solutions Diagnostics division officially on 1 January 2007.

In March 2007 a Siemens board member was temporarily arrested and accused of illegally
financing a business-friendly labour association which competes against the union IG Metall.
He has been released on bail. Offices of the labour union and of Siemens have been searched.
Siemens denies any wrongdoing.

In April 2007, the Fixed Networks, Mobile Networks and Carrier Services divisions of
Siemens merged with Nokia’s Network Business Group in a 50/50 joint venture, creating a
fixed and mobile network company called Nokia Siemens Networks. Nokia delayed the
merger due to bribery investigations against Siemens.

Through an American sub-organisation known as the Siemens Foundation, Siemens also

devotes funds to rewarding students and AP teachers. One of its main programs is the
Siemens Westinghouse Competition in maths, science, and technology, which annually

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grants scholarships up to US$100,000 to both individual and team entrants. According to the
foundation website, Siemens awards a total of nearly US$2 million in scholarship money
every year.

MAJOR CLIENTS OF SIEMENS

KCR

Novartis

Edmonton Transit System

Calgary Transit

Deutsche Bahn AG ( German rail transport company)

METRORail (Houston, Texas)

Sacramento Regional Transit District

Regional Transportation District TheRide (Denver, Colorado)

LACMTA (Los Angeles County, California)

Pittsburgh Light Rail

San Diego Trolley

MAX Light Rail (Portland, Oregon)

Nederlandse Spoorwegen (the Dutch railways) (The Netherlands)

Port of Rotterdam (Rotterdam, The Netherlands)

Balkim Muh. Elk. Ltd. Sti.

BBC
Indian Railways
Airtel
Powergrid Corporation of India

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Products

Industrial Instrumentation (Sensors and Controls)

Telecommunication Service Platform, the TSP 7000
Combino, ULF, and Avanto trams
Siemens-Duwag U2 LRV
ER20 locomotive - MTR
LHB/Siemens M1/M2/M3 Metro Mar. Pair
Siemens-Adtranz LRV
Duewag/Siemens 1435 mm Combino Low Flr LRV

MX3000 Metro car for Oslo (SGP Wien works)

S4000 metro
Schindler/Siemens ABB Be 4/8 Low Floor LRV
Metro 5001
SWBSiemensr NGT 6D LRV
Eurosprinter locomotive
Desiro, ICE, and Transrapid trains
Gigaset, Home entertainment products, including Gigaset M740 AV, a set-top box to receive
TDT and integrate it in a domestic network (using WLAN or cable), i.e. for home streaming
media.

Hicom Trading E
Hicom 300
HiPath
HiQ 8000 Softswitch
MSR32R
EWSD telephone exchanges
SPX 2000 small digital telephone exchange (rural)
Siemens Gigaset cordless telephones
Siemens Mobile Phones - divested to BenQ in 2005
Siemens SPPA-T2000 Control System (formerly Teleperm XP)
Siemens SPPA-T3000 Control System (For Electrical Power Generation Control)

SIMATIC PCS 7 Process Automation System for Process and Hybrid industries

Radio and core products for 2G and 3G Mobile Networks (GSM, UMTS, ...)
Gas & Steam Turbines
Industrial programmable controls (including Simatic PLC, and Logo! microcontrollers)
The Siemens Servo life support ventilator line

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MAGNETOM(TM) Espree
SOMATOM(R) Definition CT
SOMATOM(R) Sensation CT
SOMATOM(R) Emotion CT
AXIOM Artis
AXIOM Sensis
E.Cam Signature Series Gamma Camera
Symbia TruePoint SPECT-CT
Biograph TruePoint PET.CT
Magnetom C!, a low field open MRI
Magnetom Avanto, a Tim system MRI
Magnetom Espree, a Tim system, open bore MRI
Magnetom Trio, A Tim System, ultra high field MRI
Windturbines, 1.3 MW, 2.3 MW, 3.6 MW
Sinorix(TM)

Sistore(TM)

Main competitors of Siemens are:

ABB
Alcatel-Lucent
Automated Logic
Bombardier
Cisco Systems
Computrols
Eaton
Ericsson
General Electric
Honeywell
Johnson Controls
Lantronix
Nortel
Philips
Reliable Controls
Rockwell Automation
Samsung
Schneider Electric

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 3. OBJECTIVES AND NEED OF SUPPLY CHAIN
MANAGEMENT
Traditionally, marketing, distribution, planning, manufacturing, and the purchasing
organizations along the supply chain operated independently. These organizations have their
own objectives and these are often conflicting.

Marketing's objective of high customer service and maximum sales dollars conflict with
manufacturing and distribution goals. Many manufacturing operations are designed to
maximize throughput and lower costs with little consideration for the impact on inventory
levels and distribution capabilities. Purchasing contracts are often negotiated with very little
information beyond historical buying patterns.
The result of these factors is that there is not a single, integrated plan for the
organization---there were as many plans as businesses. Clearly, there is a need for a mechanism
through which these different functions can be integrated together. Supply chain management
is a strategy through which such integration can be achieved.

Moreover, shortened product life cycles, increased competition, and heightened

expectations of customers have forced many leading edge companies to move from physical
logistic management towards more advanced supply chain management. Additionally, in
recent years it has become clear that many companies have reduced their manufacturing costs
as much as it is practically possible. Therefore, in many cases, the only possible way to further
reduce costs and lead times is with effective supply chain management.

In addition to cost reduction, the supply chain management approach also facilitates
customer service improvements. It enables the management of:

 inventories,
 transportation systems and
 whole distribution networks

so that organizations are able to meet or even exceed their customers' expectations.

The major objective of supply chain management is to reduce or eliminate the buffers
of inventory that exists between originations in chain through the sharing of information on
demand and current stock levels.
Broadly, an organization needs an efficient and proper supply chain management
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system so that the following strategic and competitive areas can be used to their full advantage
if a supply chain management system is properly implemented.

1. Fulfillment of raw materials:

Ensuring the right quantity of parts for production or products for sale arrive at the right
time. This is enabled through efficient communication, ensuring that orders are placed with the
appropriate amount of time available to be filled. The supply chain management system also
allows a company to constantly see what is on stock and making sure that the right quantities
are ordered to replace stock.

2. Logistics:

The cost of transporting materials as low as possible consistent with safe and reliable
delivery. Here the supply chain management system enables a company to have constant
contact with its distribution team, which could consist of trucks, trains, or any other mode of
transportation. The system can allow the company to track where the required materials are at
all times. As well, it may be cost effective to share transportation costs with a partner company
if shipments are not large enough to fill a whole truck and this again, allows the company to
make this decision.

3. Smooth Production:
Ensuring production lines function smoothly because high-quality parts are available
when needed. Production can run smoothly as a result of fulfillment and logistics being
implemented correctly. If the correct quantity is not ordered and delivered at the requested
time, production will be halted, but having an effective supply chain management system in
place will ensure that production can always run smoothly without delays due to ordering and
transportation.

4. Increase in Revenue & profit:

Ensuring no sales is lost because shelves are empty. Managing the supply chain
improves a company flexibility to respond to unforeseen changes in demand and supply.
Because of this, a company has the ability to produce goods at lower prices and distribute them
to consumers quicker then companies without supply chain management thus increasing the
overall profit.
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5. Reduction in Costs:

Keeping the cost of purchased parts and products at acceptable levels. Supply chain
management reduces costs by increasing inventory turnover on the shop floor and in the
warehouse controlling the quality of goods thus reducing internal and external failure costs and
working with suppliers to produce the most cost efficient means of manufacturing a product.

6. Mutual Success:

Among supply chain partners ensures mutual success. Collaborative planning,

forecasting and replenishment (CPFR) is a longer-term commitment, joint work on quality, and
support by the buyer of the supplier’s managerial, technological, and capacity development.
This relationship allows a company to have access to current, reliable information, obtain lower
inventory levels, cut lead times, enhance product quality, improve forecasting accuracy and
ultimately improve customer service and overall profits. The suppliers also benefit from the
cooperative relationship through increased buyer input from suggestions on improving the
quality and costs and though shared savings. Consumers can benefit as well through higher
quality goods provided at a lower cost.

4. ACTIVITIES/FUNCTIONS OF SCM IN SIEMENS

Supply chain management is a cross-functional approach to managing the movement
of raw materials into an organization and the movement of finished goods out of the
organization toward the end-consumer. As corporations strive to focus on core competencies
and become more flexible, they have reduced their ownership of raw materials sources and
distribution channels. These functions are increasingly being outsourced to other corporations
that can perform the activities better or more cost effectively. The effect has been to increase
the number of companies involved in satisfying consumer demand, while reducing
management control of daily logistics operations. Less control and more supply chain partners
led to the creation of supply chain management concepts. The purpose of supply chain
management is to improve trust and collaboration among supply chain partners, thus improving
inventory visibility and improving inventory velocity.

Several models have been proposed for understanding the activities required managing
material movements across organizational and functional boundaries. SCOR is a supply chain
management model promoted by the Supply-Chain Council. Another model is the SCM Model

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 proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped
into strategic, tactical, and operational levels of activities.

(a) Strategic:-
 Strategic network optimization, including the number, location, and size of warehouses,
distribution centers and facilities.

 Strategic partnership with suppliers, distributors, and customers, creating

communication channels for critical information and operational improvements such as
cross docking, direct shipping, and third-party logistics.

 Products design coordination, so that new and existing products can be optimally
integrated into the supply chain.

 Information Technology infrastructure, to support supply chain operations.




 sWhere to make and what to make or buy decisions.

(b) Tactical:-
 Sourcing contracts and other purchasing decisions.

 Production decisions, including contracting, locations, scheduling, and planning

process definition.
 Inventory decisions, including quantity, location, and quality of inventory.
Transportation strategy, including frequency, routes, and contracting.
 Benchmarking of all operations against competitors and implementation of best
practices throughout the enterprise.

(c) Operational:-
 Daily production and distribution planning, including all nodes in the supply chain.

 Production scheduling for each manufacturing facility in the supply chain (minute by
minute).
 Demand planning and forecasting, coordinating the demand forecast of all customers

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 and sharing the forecast with all suppliers.
 Sourcing planning, including current inventory and forecast demand, in collaboration
with all suppliers. Inbound operations, including transportation from suppliers and
receiving inventory.
 Production operations, including the consumption of materials and flow of finished
goods.
 Outbound operations, including all fulfillment activities and transportation to
customers.
 Order promising, accounting for all constraints in the supply chain, including all suppliers,
manufacturing facilities, distribution centers, and other customers. Performance tracking of all
activities.

INTEGRATED SUPPLY CHAIN MANAGEMENT

An integrated supply chain management streamlines processes and increases
profitability by delivering the right product to the right place, at the right time, and at the lowest
possible cost. Unlike commercial manufacturing supplies, clinical supplies planning is very
dynamic and can often have last minute changes. Availability of patient kit when patient arrives
at investigator site is very important for clinical trial success.

This results in overproduction of drug products to take care of last minute change in
demand. R&D manufacturing is very expensive and overproduction of patient kits adds
significant cost to the total cost of clinical trials.
An integrated supply chain can reduce the overproduction of drug products by efficient
demand management, planning, and inventory management. Implementation of ERP system
(such as SAP) in R&D can have major ROI by an efficient supply and inventory management
system and also by reducing overproduction.

 How Integration Is Achieved In Supply Chain?

Stage 1:
Complete functional independence where each business function such as production or
purchasing does its own thing in complete isolation from other business function. For instance,

production function seeking to optimize its unit cost of manufacture by long production runs
with out regard for build up of finished goods inventory and advance impact it will have on thewarehousing as
well as working capital.

Stage 2:
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Companies recognize the need of limited integration between adjacent functions such as
distribution and inventory management or purchasing and material control.

Stage 3:
A natural extension of stage two, leading to establishment and implementation of end- to-end
integration. A concept of linkage and coordination is achieved.

STAGE 4:
The linkage achieved in stage three is extended upstream to suppliers and down stream to
customers. It represents true supply chain integration. This concept is also called ‘co-managed
inventory’ (CMI).

Force of supply chain management is on trust and cooperation and the recognition that is
properly managed ‘the whole cane be greater then the sum of its part’.

Inventory Decisions:

These refer to means by which inventories are managed. Inventories exist at every stage
of the supply chain as either raw material, semi-finished or finished goods. They can also be
in-process between locations. Their primary purpose to buffer against any uncertainty that
might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to
40 percent of their value, their efficient management is critical in supply chain operations. It is
long term in the sense that top management sets goals. However, most researchers have
approached the management of inventory from short term perspective. These include
deployment strategies (push versus pull), control policies --- the determination of the optimal
levels of order quantities and reorder points, and setting safety stock levels, at each stocking
location. These levels are critical, since they are primary determinants of customer service
levels.

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 5. INVENTORY CONTROL
MANAGEMENT
Inventory database
An important component of inventory planning involves access to an inventory database. It is
a structured framework that contains the information needed to effectively manage all items
of inventory, from raw materials to finished goods. This information includes the
classification and amount of inventories, demand for the items, cost to the firm for each item,
ordering costs, carrying costs and other data.
The task of inventory planning can be highly complex. At the same time it rests on
fundamental principles. In doing so we must understand and determine the optimal lot size
that has to be ordered. The EOQ (economic order quantity) refers to the optimal order size
that will result in the lowest total of order and carrying costs and ordering costs. By
calculating the economic order quantity the firm attempts to determine the order size that will
minimize the total inventory costs. In examination of the two curves reveals that the carrying
cost curve is linear i.e. more the inventory held in any period, greater will be the cost of
holding it. Ordering cost curve on the other hand is different. The ordering costs decrease
with an increase in order sizes. The point where the holding cost curve i.e. the carrying cost
curve and the ordering cost curve meet, represent the least total cost which is incidentally the
economic order quantity or optimum quantity.

PRODUCTIVITY
In the industries there will be a competitor who will be a low cost producer and will have
greater sales volume in that sector. This is partly due to economies of scale, which enable
fixed costs to spread over a greater volume but more particularly to the impact of the
experience curve.

It is possible to identify and predict improvements in the rate of output of workers as they
become more skilled in the processes and tasks on which they work. Bruce Henderson
extended this concept by demonstrating that all costs, not just production costs, would decline
at a given rate as volume increased. This cost decline applies only to value added, i.e. costs
other than bought in supplies. Traditionally it has been suggested that the main route to cost
reduction was by gaining greater sales volume and there can be no doubt about the close
linkage between relative market share and relative costs. However it must also be recognized

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that logistics management can provide a multitude of ways to increase efficiency and
productivity and hence contribute significantly to reduced unit costs.
In today’s more turbulent environment there is no longer any possibility of manufacturing
and marketing acting independently of each other. It is now generally accepted that the need
to understand and meet customer requirements is a prerequisite for survival. At the same
time, in the search for improved cost competitiveness, manufacturing management has been
the subject of massive renaissance. The last decade has seen the rapid introduction of flexible
manufacturing systems, of new approaches to inventory based on materials requirement
planning (MRP) and just in time (JIT) methods, a sustained emphasis on quality.
Equally there has been a growing recognition of the critical role that procurement plays in
creating and sustaining competitive advantage as part of an integrated logistics process.

In this scheme of things, logistics is therefore essentially an integrative concept that seeks to
develop a system wide view of the firm. It is fundamentally a planning concept that seeks to
create a framework through which the needs of the manufacturing strategy and plan, which in
turn link into a strategy and plan for procurement.

Inventory Flow:

The management of logistics is concerned with the movement and storage of materials and
finished products. Logistical operations start with the initial shipment of a material or
component part from a supplier and are finalized when a manufactured or processed product
is delivered to a customer. From the initial purchase of a material or component, the logistical
process adds value. By moving inventory when and where needed. Thus the material gains
value at each step. For a large manufacturer, logistical operations may consist of thousands of
movements, which ultimately culminate in the delivery of the product to an industrial user,
wholesaler, dealer or customer. Similarly for a retailer, logistical operations may commence
with the procurement of products for resale and may terminate with consumer pickup or
delivery.
The significant point is that regardless of the size or type of the enterprise, logistics is useful
and requires continuous management attention.

INVENTORY- related costs

21
Inventory carrying cost (ICC):
Tax
Storage
Capital
Insurance
Obsolescence
Ordering:
Communication
Processing, including material
handling and packaging
Update activities, including
receiving and date-processing

BASIC INVENTORY DECISIONS

There are two basic decisions that must be made for every item that is maintained in
inventory. These decisions have to do with the timing of orders for the item and the size of
orders for the item.

Basic Inventory Decisions

How much? When?

22
 Lot sizing decision Lot timing decision

Determination of the quantity Determination of the timing

to be ordered. for the orders.

RELEVANT INVENTORY COSTS

Relevant Inventory Costs

Item Costs Holding Costs Ordering Costs Shortage Costs

Direct cost for Costs associated Fixed costs Costs associated
getting an item. with carrying items associated with with not having
Purchase cost for in inventory. placing an order enough inventory
outside orders, Storage and other (either a purchase to meet demand.
manufacturing cost related costs. cost for outside
for internal orders. orders, or a setup
cost for internal
orders).

23
EOQ:

The EOQ can be calculated with the help of a mathematical formula. Following assumptions
are implied in the calculation:
1. Constant or uniform demand- although the EOQ model assumes constant demand, demand
may vary from day to day. If demand is not known in advance- the model must be modified
through the inclusion of safe stock.
2. Constant unit price- the EOQ model assumes that the purchase price per unit of material
will remain unaltered irrespective of the order offered by the suppliers to include variable
costs resulting from quantity discounts, the total costs in the EOQ model can be redefined.
3. Constant carrying costs- unit carrying costs may very substantially as the size of the
inventory rises, perhaps decreasing because of economies of scale or storage efficiency or
increasing as storage space runs out and new warehouses have to be rented.
4. Constant ordering cost- this assumption is generally valid. However any violation in this
respect can be accommodated by modifying the EOQ model in a manner similar to the one
used for variable unit price.
5. Instantaneous delivery- if delivery is not instantaneous, which is generally the case; the
original EOQ model must be modified through the inclusion of a safe stock.
6. Independent orders- if multiple orders result in cost saving by reducing paper work and the
transportation cost, the original EOQ model must be further modified. While this
modification is somewhat complicated, special EOQ models have been developed to deal
with it.
These assumptions have been pointed out to illustrate the limitations of the basic EOQ model
and the ways in which it can be easily modified to compensate for them.

The formula for the EOQ model is:

2 M Co
S Cc

Where M = is the annual demand

Co is the cost of ordering

24
Cc is the inventory carrying cost
S = is the unit price of an item.
Limitations of the EOQ formula-
1. Erratic changes usages- the formula presumes the usage of materials is both predictable
and evenly distributed. When this is not the case, the formula becomes useless.
2. Faulty basic information- order cost varies from commodity to commodity and the carrying
cost can vary with the company’s opportunity cost of capital. Thus the assumption that the
ordering cost and the carrying cost remains constant is faulty and hence EOQ calculations are
not correct.
3. Costly calculations: the calculation required to find out EOQ is extremely time consuming.
More elaborate formulae are even more expensive. In many cases, the cost of estimating the
cost of possession and acquisition and calculating EOQ exceeds the savings made by buying
that quantity.
4. No formula is a substitute for common sense- sometimes the EOQ may suggest that we
order a particular commodity every week (six-year supply) based on the assumption that we
need it at the same rate for the next six years. However we have to order it in the quantities
according to our judgment. Some items can be ordered every week; some can be ordered
monthly, depends on how feasible it is for the firm.
5. EOQ ordering must be tempered with judgment- Sometimes guidelines provide a conflict
in ordering. Where an order strategy conflicts with an operational goal, order strategy
restrictions should be developed to permit honoring the goal.

Quantity discounts: In the EOQ analysis, it has been assumed that material prices and
transportation costs were constant factors for the range of order quantities considered. In
practice, some situations occur in which the delivered unit cost of a material decreases
significantly if a slightly larger quantity than the originally computed EOQ is purchased.
Quantity discounts, freight rate schedules and price increases may create such situations.
These additional variables can also be included in the formula.
Cost of carrying inventory:
Carrying material in inventory is expensive. A number of studies indicated that the annual
cost of carrying a production inventory averaged approximately 25% of the value of the
inventory. The escalating and volatile cost of money has escalated the annual inventory
carrying cost to a figure between 25% - 35% of the value of the inventory. The following five
elements make up this cost:

25
1) Opportunity cost (12% -20%)
2) Insurance cost (2% – 4%)
3) Property taxes (1% - 3%)
4) Storage costs (1%- 3%)
5) Obsolescence and deterioration (4% - 10%)
Total carrying cost (20% - 40%)
Let us briefly look into these costs:
Opportunity cost of invested funds
When a firm uses money to buy production material and keeps it in the inventory, it simply
has this much less cash to spend for other purposes. Money invested in external securities or
in productive equipment earns a return for the company. Thus it is logical to charge all
money invested in inventory an amount equal to that it could earn elsewhere in the company.
This is the opportunity cost associated with inventory investment.

Insurance cost
Most firms insure the assets against possible losses from fire and other forms of damage.

Property taxes
This is levied on the assessed value of a firm’s assets, the greater the inventory value, the
greater the asset value and consequently the higher the firm’s tax bill.

Storage costs
The warehouse is depreciated every year over the length of its life. This cost can be charged
against the inventory occupying the space.

Obsolescence and deterioration

In most inventory operations, a certain percentage of the stock spoils, is damaged, is pilfered,
or eventually becomes obsolete. A certain number always takes place even if they are
handled with utmost care.

Generally speaking, this group of carrying costs rises and falls nearly proportionately to the
rise and fall of the inventory level.

26
The ABC Classification:
Indicators that classifies a material as an A,B or C part according to its consumption value
.The classification process is known as the ABC analysis.
The three indictors have the following meanings:
A-important part , high consumption value
B-less important , medium consumption value
C-relatively unimportant part , low consumption value
The ABC classification system is to grouping items according to annual sales volume, in an
attempt to identify the small number of items that will account for most of the sales volume
and that are the most important ones to control for effective inventory management.
Reorder Point: The inventory level R in which an order is placed where R = D.L, D = demand
rate (demand rate period (day, week, etc), and L = lead time.
Safety Stock: Remaining inventory between the times that an order is placed and when new
stock is received. If there are not enough inventories then a shortage may occur.
Safety stock is a hedge against running out of inventory. It is an extra inventory to take care
on unexpected events. It is often called buffer stock. The absence of inventory is called a
shortage.
ABC Inventory Classification

The ABC classification process is an analysis of a range of items, such as finished products
or customers into three categories: A - outstandingly important; B - of average importance; C
- relatively unimportant as a basis for a control scheme. Each category can and sometimes
should be handled in a different way, with more attention being devoted to category A, less to
B, and less to C.
Inventory Control Application: The ABC classification system is to grouping items according
to annual sales volume, in an attempt to identify the small number of items that will account
for most of the sales volume and that are the most important ones to control for effective
inventory management.

27
Break-even analysis depends on the following variables:
1. Selling Price per Unit: The amount of money charged to the customer for each unit of
a product or service.
2. Total Fixed Costs: The sum of all costs required to produce the first unit of a product.
This amount does not vary as production increases or decreases, until new capital
expenditures are needed.
3. Variable Unit Cost: Costs that vary directly with the production of one additional unit.
Total Variable Cost The product of expected unit sales and variable unit cost, i.e., expected
unit sales times the variable unit cost.
4. Forecasted Net Profit: Total revenue minus total cost. Enter Zero (0) if you wish to
find out the number of units that must be sold in order to produce a profit of zero (but
will recover all associated costs)
Break-Even Point in siemens: Number of units that must be sold in order to produce a profit
of zero (but will recover all associated costs). In other words, the break-even point is the
point at which your product stops costing you money to produce and sell, and starts to
generate a profit for your company.
where:
Q = Break-even Point, i.e., Units of production (Q),
FC = Fixed Costs,
VC = Variable Costs per Unit
UP = Unit Price
Therefore,
Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)

Stock control and inventory

Stock control, otherwise known as inventory control, is used to show how much stock you
have at any one time, and how you keep track of it.
It applies to every item you use to produce a product or service, from raw materials to
finished goods. It covers stock at every stage of the production process, from purchase and
delivery to using and re-ordering the stock.
Efficient stock control allows you to have the right amount of stock in the right place at the
right time. It ensures that capital is not tied up unnecessarily, and protects production if
problems arise with the supply chain.

28
Supply chain vendor management inventory:
Allows supply chain partners to share critical order, demand and inventory information in
real-time and uses both integrated and web based applications to reduce administration costs,
shortening cycle times and help lower inventory levels. Our unique, managed supply hub
requires little upfront investment, yet quickly starts delivering high performance in real time

Inventory Control Overview

Normal Inventory
As it sounds, this type of inventory item will be used for the majority of your parts. It will
correctly track the inventory received and sold on a first in first out basis, will handle cost of
sales, and will warn you when you're out of stock.

Non-Inventory Type
This is used for selling things that are not really inventory items. For example, you could be
selling warranty, but because you don't have warranty in a box to sell, and you'll never run
out of stock, you won't need to keep inventory control on it. As well, there is no cost of sale
adjustments with non-stock items. The system will not calculate how much you paid for the
item, and therefore will not try to remove that value from inventory in the general ledger. If
you are selling something that does cost you money, you will have to handle these details
manually.
Labor Parts

You (probably) don't have technicians hanging from hooks in your back room, so like non-
inventory items, the system will not try to remove them from inventory when you sell a labor
item. The two differences between Non-Inventory items an Labor items are that you can
optionally have the system ask you for the technician code that did the work so that you can
print reports showing who did what work. As well, the system will optionally ask for a
comment to explain what was done so that the description of the service work can be printed
on the invoice.

Note too that you can optionally keep track of how much time was spent and how much time
was billed for on a per job basis. At the end of the month, you can then print technician

29
productivity reports to compare total time spent compared to billable hours. In the automotive
industry, some mechanics can do the work faster than is what is billed because the billing is
based on industry standards.

Consignment Items
Consignments can be used to keep track of inventory that you don't own, but at the time you
sell it, you must pay for it. You'll be able to generate several reports, including a list of
inventory that is on consignment but not sold and a list of inventory sold on consignment, but
not yet paid for.

Floor Plan Inventory

Floor planning is very similar to consignment, except that you take possession and own the
inventory when you receive it, but you don't have to pay for it until it's sold, or until it's been
in the store for a negotiated period of time. However, you do own the inventory and do have
to pay for it sometime.

Some floor planning companies want the ability to check the inventory serial number by
serial number for the larger items, and others may just want to count the number of each
model number on hand. Regardless, Windward System Five can handle it.

On the accounts payable side, you will be able to keep track of who you owe the money too
(Floor Planning Company) and who you actually bought the inventory from (Supplier) and
generate proper histories of each.

Tire Inventory
Windward System Five has the ability to sort and categorize tires by their size, aspect ratio
and rim size. In addition, you will also be able to search for the tires by just entering in some
of the search criteria and having the system bring up a window of all matches.

When the list brings up a list of tires that can all fit the vehicle, the system can sort the list to
show the items with the highest quantity in stock at the top of the list and the items that are
out of stock at the bottom of the list. This will help you sell what you actually have to sell
instead of creating special orders.

30
Product Inventory
Products are items such as vehicles that you might service or repair after selling them to the
customer. That is, they are an item in the database that can be sold, and when sold, are
automatically added to the customer's list of products that can be worked on.

Examples are vehicles, trucks, recreational vehicles, fridges, air conditioners, and chainsaws.
The system will let you keep additional information on these products, such as make, model,
year, and other comments, and will also be able to list all the work or repairs performed
between two dates.

Windward System Five can also track whole goods such as recreational vehicles by keeping
track of the cost of the item before the sale, add ones and pre-delivery inspection items. In
addition, the system can generate a "wash out" report one level deep to show the costs and
income associated with the trade in.

Serialized Inventory
Those items that need to be tracked by their serial numbers can be marked as serialized
inventory. For example, fridges, stoves, computers, and chainsaws might all be serialized.
Note that if you plan on servicing these items in the future and keeping track of all work you
do on them, they should be entered as products instead of serial numbers.

TYPES OF INVENTORY

Several different types of inventories are conducted, depending upon the type of
materiel involved and type of information needed. Bulkhead-to-Bulkhead Inventory

A bulkhead-to-bulkhead inventory is a physical count of all stock materiel within the

ship or within a specific storeroom. . A bulkhead-to-bulkhead
inventory of a specific storeroom is taken when
a random sampling inventory of that storeroom
fails to meet the inventory accuracy rate of 90 percent when directed as a result

31
of a supply management inspection (SMI). It is
also taken when directed by the commanding
officer or when circumstances clearly indicate that
it is essential to effective inventory control.

Specific Commodity Inventory

The specific commodity inventory is a physical
count of all items under the same cognizance
symbol, FSC, or that support the same operational function, such as-
boat spares, electron tubes, boiler tubes, or fire brick. This inventory is taken under the
same conditions as a bulkhead- to-bulkhead inventory; however, prior knowledge
of specific stock numbers and item location is required to conduct a specific commodity
inventory

Special Materiel Inventory

A special materiel inventory requires the physical count of all items that, because of
their physical characteristics, costs, mission essentiality,
and criticality, are specifically designated for
separate identification and inventory control. Special materiel inventories include, but
are not limited to, stocked items designated as classified or hazardous. Special materiel
inventories also include controlled equipage and presentation silver

Advantage Inventory Control

The Inventory Control gives you the ability to handle your inventory your way. As one of the
most flexible and comprehensive modules in the Advantage, you can choose the level of
control that best suits your specific business needs. Your inventory can be valued on a LIFO,
FIFO or Average cost basis. You can choose to use parts explosions, serialized inventory,
parts allocations, vendors, warehouses and an audit trail. The system can also track the
quantity sold for each item for the last 12 months and, using this data, provides a sales
analysis report to help you better manage your stock. Financing is aided by the serialized
aged report that shows which serialized items have been in your inventory the longest and
how much you have outstanding. Pricing can be standardized by rounding to a given factor or
by being set to a specific suffix. With the Below Minimum report, reordering stock is

32
automatic and accurate. Inventory Control is a stand–alone module that can also be integrated
with Purchase Orders, Point of Sale, Billing/Order Entry, Job Cost, Time Billing and Quick
Sale.
21–character alphanumeric item number field
Lookup on item number, item description (21 characters) and group (15 character) fields
Tracks serialized items
Allows for superseded, preceded and substitute items
Unlimited additional descriptions can be added to items
Handles markup and gross profit cost basis
Can automatically update item pricing and discounts
Handles core pricing
Produces a re–order report based on minimum stock quantities
Tracks unlimited vendors per item and recommends a ‘best’ vendor
Tracks allocations including explosion allocations
Up to 254 discounts per item, including quantity break discounts
Unit conversions can be defined for each item for both buying and selling quantities
Allows for warehouse transfers and other quantity adjustments
Set up special sale dates for item discounting

Produces physical inventory forms

Imports physical inventory and received quantities from data collected with hand-held
computers
Provides up to 255 levels of parts explosion to allow you to identify all components of your
assembled stock
Automatically updates cost and price on explosion items based on subassembly changes
· Reports the best and worst selling items in each of eight different categories
· Tracks items by location or quantity in multiple warehouses
· Can automatically generate items based on a template item
· Utilizes Rapid Entry to facilitate entry of item data
Disadvantages:

• conveyor needs to be slightly declined for carton movement (one way);

• may require addition of powered booster units in some applications;

33
• cannot be used for inter-floor movement except for down travel;

• goods need to be manually pushed when horizontal;

• no positive control over moving carton;

• produces line pressure when accumulating.

· Require efficiency of land

We propose a method for valuing new, recoverable, and recovered assemblies (products,
components, parts, etc.) in production systems with reverse logistics. Values of assemblies
influence their opportunity holding cost rates and are hence essential for comparing inventory
strategies in average cost models. We argue that the proposed method is 'correct' from a
discounted cash flow (DCF) point of view. We refer to some previous results on valuing
assemblies in systems without disassembly of returned products that seem to confirm this.
Furthermore, we test the method for a specific example with disassembly of returned
products. The simulation results indicate that the method indeed leads to (nearly) DCF
optimal inventory strategies.

Packaging

In siemens, with its large product volumes, low margins and fierce competition, is constantly
seeking efficiency improvements in its supply chain. The grocery retail industry uses an
immense amount of packaging and is directly affected by packaging logistics activities. There
is, therefore, a potential for efficiency improvements in the grocery retail supply chain
through the integration and development of new systems of packaging and logistics.
Packaging handling is identified as one of the main activities that has a strong impact on the
overall logistical cost of chain. This research article investigates packaging handling
evaluation methods and discusses how these are employed to benefit the industry from the
industry, have been used to evaluate packaging and logistics activities. This work, together
with a literature review, was used to identify the need for evaluative methods and the present
availability of such methods. The results indicated a lack of sufficient and usable packaging
handling evaluation methods in today's grocery and packaging industry especially from a

34
logistical point of view. The paper also highlights the lack of systematization among the few
methods used and discusses how these can be used to build a systematic and multifunctional
evaluation model in order to utilize the information from different studies to build a
knowledge base for the future

Vendor-Managed Inventory
Siemens is a leading global manufacturer, focused on delivering operational services to high-
tech companies, needed to take advantage of vendor-managed inventory (VMI)
postponement and optimal fulfillment solutions to stay competitive in its low-margin
manufacturing marketplace. Its objective was to find ways to reduce inventory redundancy,
improve customer responsiveness by reduced cycle times and simplify supplier management
and procurement administration. The manufacturer also needed to augment existing
infrastructure, while reducing investments in additional personnel, facilities and systems
Vendor Managed Inventory (VMI)

Vendor Managed Inventory supports the efficient flow of materials into the market. Working
closely with you and your suppliers, we automate the forecast management process with
Web-based software that enables the flow of supply to more accurately mirror store – and
even shelf-level – demand.
Move your inventory in and out of our distribution centers and manage demand planning. We
can store and stage product for replenishment at our often freeing or limited store rooms. We
provide forecast visibility, comparing actual demand against DC-on-hand, store-on-hand and
in-transit inventory. When store or inventory falls below pre-determined levels, auto alerts
are sent to you and your supplier to prompt replenishment.

Advanced Shipping Notices (ASNs) provide detail on in-transit inventory from suppliers so
you have visibility to inventory deeper into the supply chain. This allows for confident
commitment to orders based on this inbound flow.
Postpone inventory ownership until shipment to your site. Once your inventory is moved to
the we work with your suppliers to transition inventory ownership until demand occurs.
Perform value-added services, allowing you to more efficiently manage the flow of goods
into manufacturing or directly to market.

Vendor Managed Inventory (VMI)

35
Vendor Managed Inventory by Kuehne + Nagel supports the efficient flow of materials into
the market. Working closely with you and your suppliers, we automate the forecast
management process with Web-based software that enables the flow of supply to more
accurately mirror store – and even shelf-level – demand.
Move your inventory in and out of our distribution centers and manage demand planning with
Web-based applications. We can store and stage product for replenishment at our DCs, often
freeing up your own DC space or limited store rooms. We provide forecast visibility,
comparing actual demand against DC-on-hand, store-on-hand and in-transit inventory. When
store or DC inventory falls below pre-determined levels, auto alerts are sent to you and your
supplier to prompt replenishment.

Advanced Shipping Notices (ASNs) provide detail on in-transit inventory from suppliers so
you have visibility to inventory deeper into the supply chain. This allows for confident
commitment to orders based on this inbound flow.
Postpone inventory ownership until shipment to your site. Once your inventory is moved to
the Kuehne + Nagel DC, we work with your suppliers to transition inventory ownership until
demand occurs.
Perform value-added services, allowing you to more efficiently manage the flow of goods
into manufacturing or directly to market.

6. WAREHOUSE
A warehouse is a commercial building for storage of goods. Warehouses are used by
manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are
usually large plain buildings in industrial areas of cities and towns. They come equipped with
loading docks to load and unload trucks; or sometimes are loaded directly from railways,
airports, or seaports. They also often have cranes and forklifts for moving goods, which are
usually placed on ISO standard pallets loaded into pallet racks.

Some warehouses are completely automated, with no workers working inside. The pallets and
product are moved with a system of automated conveyors and automated storage and
36
retrieval machines coordinated by programmable logic controllers and computers running
logistics automation software. These systems are often installed in refrigerated warehouses
where temperatures are kept very cold to keep the product from spoiling, and also where land
is expensive, as automated storage systems can use vertical space efficiently. These high-bay
storage areas are often more than 10 meters high, with some over 20 meters high.

The direction and tracking of materials in the warehouse is coordinated by the WMS, or
Warehouse Management System, a database driven computer program. The WMS is used by
logistics personnel to improve the efficiency of the warehouse by directing putaways and to
maintain accurate inventory by recording warehouse transactions.

Traditional warehousing has been declining since the last decades of the 20th century with
the gradual introduction of Just In Time (JIT) techniques designed to improve the return on
investment of a business by reducing in-process inventory. The JIT system promotes the
delivery of product directly from the factory to the retail merchant, or from parts
manufacturers directly to a large scale factory such as an automobile assembly plant, without
the use of warehouses. However, with the gradual implementation of offshore outsourcing
and offshoring in about the same time period, the distance between the manufacturer and the
retailer (or the parts manufacturer and the industrial plant) grew considerably in many
domains, necessitating at least one warehouse per country or per region in any typical supply
chain for a given range of products.

37
Recent developments in marketing have also led to the development of warehouse-style retail
stores with extremely high ceilings where decorative shelving is replaced by tall heavy duty
industrial racks, with the items ready for sale being placed in the bottom parts of the racks
and the crated or palletized and wrapped inventory items being usually placed in the top
parts. In this way the same building is used both as a retail store and a warehouse.

IN INDIA SIEMENS HAVE THEIR WAREHOUSES AT DELHI, MUMBAI,

KARNATAKA, CHENNAI, BANGLORE, WEST BENGAL, NASHIK, AURANGABAD,
GOA, PUNE, HYDERABAD, VADODRA

7. TRANSPORTATION

Transport or transportation is the movement of people and goods from one place to
another. The term is derived from the Latin trans ("across") and portare ("to carry").

Industries which have the business of providing equipment, actual transport, transport of
people or goods and services used in transport of goods or people make up a large broad and
important sector of most national economies, and are collectively referred to as transport
industries.

MODES OF TRANSPORT USED FOR TRANFER OF INVENTORY IN

SIEMENS
Air transport

Cable transport

Conveyor transport

Human-powered transport

Hybrid transport

New Mobility Agenda

Rail transport

Road transport, including human-powered transport such as walking and cycling

Ship transport

38
Space transport

Sustainable transportation

Transport on other planets

Proposed future transport

Transport is a major use of energy, and transport burns most of the world's petroleum.
Transportation accounts for 2/3 of all U.S. petroleum consumption.[3]

The transportation sector generates 82 percent of carbon monoxide and 56 percent of NOx
emissions and over one-quarter of total US greenhouse gas emissions.[4] Hydrocarbon fuels
also produce carbon dioxide, a greenhouse gas widely thought to be the chief cause of global
climate change, and petroleum-powered engines, especially inefficient ones, create air
pollution, including nitrous oxides and particulates (soot). Although vehicles in developed
countries have been getting cleaner because of environmental regulations, this has been offset
by an increase in the number of vehicles and more use of each vehicle.

Other environmental impacts of transport systems include traffic congestion and automobile-
oriented urban sprawl, which can consume natural habitat and agricultural lands.

Toxic runoff from roads and parking lots that can also pollute water supplies and aquatic
ecosystems.

Alternative propulsion can reduce pollution. Low pollution fuels may have a reduced carbon
content, and thereby contribute less in the way of carbon dioxide emissions, and generally
have reduced sulfur, since sulfur exhaust is a cause of acid rain. The most popular low-
pollution fuels at this time are biofuels: gasoline-ethanol blends and biodiesel. Hydrogen is an
even lower-pollution fuel that produces no carbon dioxide, but producing and storing it
economically is currently not feasible. Plug-in hybrids are energy-efficient vehicles that are
going to be in the mass-production.

Another strategy is to make vehicles more efficient, which reduces pollution and waste by
reducing the energy use. Electric vehicles use efficient electric motors, but their range is
limited by either the extent of the electric transmission system or by the storage capacity of
batteries. Electrified public transport generally uses overhead wires or third rails to transmit
electricity to vehicles, and is used for both rail and bus transport. Battery electric vehicles
store their electric fuel onboard in a battery pack. Another method is to generate energy using
fuel cells, which may eventually be two to five times as efficient as the internal combustion
39
engines currently used in most vehicles. Another effective method is to streamline ground
vehicles, which spend up to 75% of their energy on air-resistance, and to reduce their weight.
Regenerative braking is possible in all electric vehicles and recaptures the energy normally
lost to braking, and is becoming common in rail vehicles. In internal combustion automobiles
and buses, regenerative braking is not possible, unless electric vehicle components are also a
part of the powertrain, these are called hybrid electric vehicles.

40
 8. DISTRIBUTION

Distribution is one of the 4 aspects of marketing. A distributor is the middleman between the
manufacturer and retailer. After a product is manufactured it is typically shipped (and usually
sold) to a distributor. The distributor then sells the product to retailers or customers.

The other three parts of the marketing mix are product management, pricing, and promotion.

Traditionally, distribution has been seen as dealing with logistics: how to get the product or
service to the customer. It must answer questions such as:

Should the product be sold through a retailer?

Should the product be distributed through wholesale?

Should multi-level marketing channels be used?

How long should the channel be (how many members)?

Where should the product or service be available?

When should the product or service be available?

Should distribution be exclusive, selective or intensive?

Who should control the channel (referred to as the channel captain)?

Should channel relationships be informal or contractual?

Should channel members share advertising (referred to as co-op ads)?

Should electronic methods of distribution be used?

Are there physical distribution and logistical issues to deal with?

What will it cost to keep an inventory of products on store shelves and in channel warehouses
(referred to as filling the pipeline)?

41
THE DISTRIBUTION CHANNEL

Frequently there may be a chain of intermediaries, each passing the product down the chain
to the next organization, before it finally reaches the consumer or end-user. This process is
known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will
have their own specific needs, which the producer must take into account, along with those of
the all-important end-user.

A number of alternate 'channels' of distribution may be available:

Selling direct, such as via mail order, Internet and telephone sales

Agent, who typically sells direct on behalf of the producer

Distributor (also called wholesaler), who sells to retailers

Retailer (also called dealer or reseller), who sells to end customers

Advertisement typically used for consumption goods

Distribution channels may not be restricted to physical products alone. They may be just as
important for moving a service from producer to consumer in certain sectors, since both
direct and indirect channels may be used. Hotels, for example, may sell their services
(typically rooms) directly or through travel agents, tour operators, airlines, tourist boards,
centralized reservation systems, etc.

There have also been some innovations in the distribution of services. For example, there has
been an increase in franchising and in rental services - the latter offering anything from
televisions through tools. There has also been some evidence of service integration, with
services linking together, particularly in the travel and tourism sectors. For example, links
now exist between airlines, hotels and car rental services. In addition, there has been a
significant increase in retail outlets for the service sector. Outlets such as estate agencies and
building society offices are crowding out traditional grocers from major shopping areas..

CHANNEL MEMBERS

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Distribution channels can thus have a number of levels. Kotler defined the simplest level, that
of direct contact with no intermediaries involved, as the 'zero-level' channel.

The next level, the 'one-level' channel, features just one intermediary; in consumer goods a
retailer, for industrial goods a distributor, say. In small markets (such as small countries) it is
practical to reach the whole market using just one- and zero-level channels.

In large markets (such as larger countries) a second level, a wholesaler for example, is now
mainly used to extend distribution to the large number of small, neighborhood retailers.

In Japan the chain of distribution is often complex and further levels are used, even for the
simplest of consumer goods.

In Bangladesh Telecom Operators are using different Chain of Distribution specially 'second
level'.

Many of the marketing principles and techniques which are applied to the external customers
of an organization can be just as effectively applied to each subsidiary's, or each
department's, 'internal' customers.

In some parts of certain organizations this may in fact be formalized, as goods are transferred
between separate parts of the organization at a `transfer price'. To all intents and purposes,
with the possible exception of the pricing mechanism itself, this process can and should be
viewed as a normal buyer-seller relationship. The fact that this is a captive market, resulting
in a `monopoly price', should not discourage the participants from employing marketing
techniques.

Less obvious, but just as practical, is the use of `marketing' by service and administrative
departments; to optimize their contribution to their `customers' (the rest of the organization in
general, and those parts of it which deal directly with them in particular). In all of this, the
lessons of the non-profit organizations, in dealing with their clients, offer a very useful
parallel.

CHANNEL MANAGEMENT

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The channel decision is very important. In theory at least, there is a form of trade-off: the cost
of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most
consumer goods manufacturers could never justify the cost of selling direct to their
consumers, except by mail order. In practice, if the producer is large enough, the use of
intermediaries (particularly at the agent and wholesaler level) can sometimes cost more than
going direct.

Many of the theoretical arguments about channels therefore revolve around cost. On the other
hand, most of the practical decisions are concerned with control of the consumer. The small
company has no alternative but to use intermediaries, often several layers of them, but large
companies 'do' have the choice.

However, many suppliers seem to assume that once their product has been sold into the
channel, into the beginning of the distribution chain, their job is finished. Yet that distribution
chain is merely assuming a part of the supplier's responsibility; and, if he has any aspirations
to be market-oriented, his job should really be extended to managing, albeit very indirectly,
all the processes involved in that chain, until the product or service arrives with the end-user.
This may involve a number of decisions on the part of the supplier:

Channel membership

Channel motivation

Monitoring and managing channels

Good Distribution Practice or GDP deals with the guidelines for the proper distribution of
medicinal products for human use. GDP is a quality warranty system, which includes
requirements for purchase, receiving, storage and export of drugs, intended for human
consumption.

GDP regulates the division and movement of pharmaceutical products from the premises of
the manufacturer of medicinal products, or another central point, to the end user thereof, or to
an intermediate point by means of various transport methods, via various storage and/or
health establishments.

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 9. PACKAGING AND LABELLING
Packaging is the science, art and technology of enclosing or protecting products for
distribution, storage, sale, and use. Packaging also refers to the process of design, evaluation,
and production of packages. Package labelling (BrE) or labeling (AmE) is any written,
electronic, or graphic communications on the packaging or on a separate but associated label.

Packaging is heavily integrated into our daily lives, we see it all around us, on everyday items
such as chocolate bars and potato chip (crisp) packets- As explained below, the main use for
packaging is protection of the goods inside, but packaging also provides us with a
recognisable logo, or packaging, we instantly know what the goods are inside

The purposes of packaging and package labels

Packaging and package labelling have several objectives:

Physical Protection - The objects enclosed in the package may require protection from,
among other things, shock, vibration, compression, temperature, etc.

Barrier Protection - A barrier from oxygen, water vapor, dust, etc., is often required.
Package permeability is a critical factor in design. Some packages contain desiccants or
Oxygen absorbers to help extend shelf life. Modified atmospheres or controlled atmospheres
are also maintained in some food packages. Keeping the contents clean, fresh, and safe for
the intended shelf life is a primary function.

Containment or Agglomeration - Small objects are typically grouped together in one

package for reasons of efficiency. For example, a single box of 1000 pencils requires less
physical handling than 1000 single pencils. Liquids, powders, and flowables need
containment.

Information transmission - Packages and labels communicate how to use, transport,

recycle, or dispose of the package or product. With pharmaceutical, food, medical, and
chemical products, some types of information are required by governments.

Marketing - The packaging and labels can be used by marketers to encourage potential
buyers to purchase the product. Package design has been an important and constantly

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evolving phenomenon for dozens of years. Marketing communications and graphic design are
applied to the surface of the package and (in many cases) the point of sale display.

Security - Packaging can play an important role in reducing the security risks of shipment.
Packages can be made with improved tamper resistance to deter tampering and also can have
tamper-evident features to help indicate tampering. Packages can be engineered to help
reduce the risks of package pilferage: Some package constructions are more resistant to
pilferage and some have pilfer indicating seals. Packages may include authentication seals to
help indicate that the package and contents are not counterfeit. Packages also can include
anti-theft devices, such as dye-packs, RFID tags, or electronic article surveillance tags, that
can be activated or detected by devices at exit points and require specialized tools to
deactivate. Using packaging in this way is a means of loss prevention.

Convenience - Packages can have features which add convenience in distribution, handling,
display, sale, opening, reclosing, use, and reuse.

Portion Control - Single serving or single dosage packaging has a precise amount of
contents to control usage. Bulk commodities (such as salt) can be divided into packages that
are a more suitable size for individual households. It is also aids the control of inventory:
selling sealed one-liter-bottles of milk, rather than having people bring their own bottles to
fill themselves.

Packaging types

Packaging may be looked at as several different types. For example a transport package or
distribution package is the package form used to ship, store, and handle the product or inner
packages. Some identify a consumer package as one which is directed toward a consumer or
household.

It is sometimes convenient to categorize packages by layer or function: "primary",

"secondary", etc.

 Primary packaging is the material that first envelops the product and holds it. This
usually is the smallest unit of distribution or use and is the package which is in direct
contact with the contents.

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  Secondary packaging is outside the primary packaging – perhaps used to group
primary packages together.
 Tertiary packaging is used for bulk handling and shipping.

Using these three types as a general guide, examples of packaging materials and structures
might typically be listed as follows:

Primary packaging
Aerosol spray can

Bags-In-Boxes

Beverage can

Wine box

Bottles

Blister packs

Carton

Cushioning

Envelopes

Plastic bags

Plastic bottles

Skin pack

Tin can

Wrappers

Secondary packaging

Boxes

Cartons

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Shrink wrap

Tertiary Packaging

Bales

Barrel

Crate

Container

edge protector

Flexible intermediate bulk container, Big bag, "Bulk Bags", or "Super Sacks"

Insulated shipping container

Intermediate bulk container

Pallets

Slip Sheet

Stretch wrap

Packaging machines

A choice of packaging machinery includes, technical capabilities, labor requirements, worker

safety, maintainability, serviceability, reliability, ability to integrate into the packaging line,
capital cost, floorspace, flexibility (change-over, materials, etc.), energy usage, quality of
outgoing packages, qualifications (for food, pharmaceuticals, etc.), throughput, efficiency,
productivity, ergonomics, etc.

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High speed conveyor with bar code scanner for sorting transport packages

Packaging machines may be of the following general types:

Blister, Skin and Vacuum Packaging Machines

Capping, Over-Capping, Lidding, Closing, Seaming and Sealing Machines

Cartoning Machines

Case and Tray Forming, Packing, Unpacking, Closing and Sealing Machines

Cleaning, Sterilizing, Cooling and Drying Machines

Conveying, Accumulating and Related Machines

Feeding, Orienting, Placing and Related Machines

Filling Machines: handling liquid and powdered products

Package Filling and Closing Machines

Form, Fill and Seal Machines

Inspecting, Detecting and Checkweighing Machines

Palletizing, Depalletizing, Pallet Unitizing and Related Machines

Product Identification: labelling, marking, etc.

Wrapping Machines Converting Machines

Other speciality machinery: slitters, perforating, laser cutters, parts attachment, etc

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 CONCLUSION

Logistics is the art and science of managing and controlling the flow of goods, energy,
information and other resources like products, services, and people, from the source of
production to the marketplace. It is difficult or nearly impossible to accomplish any
international trading, global export/import processes, international repositioning of raw
materials/products and manufacturing without a professional logistical support. It involves
the integration of information, transportation, inventory, warehousing, material handling, and
packaging. The operating responsibility of logistics is the geographical repositioning of raw
materials, work in process, and finished inventories where required at the lowest cost
possible.

Inventory is a list of goods and materials, or those goods and materials themselves, held
available in stock by a business. Inventory are held in order to manage and hide from the
customer the fact that manufacture/supply delay is longer than delivery delay, and also to
ease the effect of imperfections in the manufacturing process that lower production
efficiencies if production capacity stands idle for lack of materials.

FINALLY I CONCLUDE THAT SIEMENS HAVE THE BEST INVENTORY CONTROL

MEASURES THEY HAVE BACK UP FOR EVERYTHING I LEARNT

 HOW INVENTORY IS MANAGED

 WHAT IS ROLE OF TRANSPORT
 WHAT IS ROLE OF PACKAGING
 ROLE OF SUPPLY CHAIN IN INEVNTORY
 ROLE OF LOGISTICS DEPARTMENT IN INVENTORY

-------------------------------------------------------THANK YOU!-----------------------------------------------------------
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