Chapter: Inventory Management (Cont’d)

Course: SUPPLY CHAIN MANAGEMENT

Lecture 5

Week: 5th (12th October)

Dr. Waqas Ahmed

Department of Operations and Supply Chain
NUST Business School (NBS)
National University of Sciences & Technology, Islamabad, Pakistan
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Inventory Classification

he ABC approach divides this list into three groupings by value:

⌂ A items constitute roughly the top 15 percent of the items,
⌂ B items the next 35 percent,
⌂ and C items the last 50 percent.

egmentation may not always occur so neatly.

he objective, though, is to try to separate the important from the unimportant.

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Inventory Classification

he purpose of classifying items into groups is to establish the appropriate degree

of control over each item.
⌂ On a periodic basis, for example, class A items may be more clearly controlled with weekly
ordering,
⌂ B items may be ordered biweekly,
⌂ and C items may be ordered monthly or bimonthly.

https://www.youtube.com/watch?v=tZxS7uCmIcU
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ABC Classification

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ABC Classification

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Inventory Accuracy and Cycle Counting

nventory records usually differ from the actual physical count; inventory accuracy
refers to how well the two agree.

he question is, “How much error is acceptable?”

very production system must have agreement, within some specified range,
between what the record says is in inventory and what actually is in inventory.

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Reasons why records and inventory may not »Dr. Waqas Ahmed

agree

n open stockroom area allows items to be removed for both legitimate and
unauthorized purposes

he removal may have been done in a hurry and simply not recorded

arts are often stored in several locations, but records may be lost or the location
recorded incorrectly.

ometimes stock replenishment orders are recorded as received, when in fact they
never were.
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How can a firm keep accurate, up-to-date records?

sing bar codes and RFID tags

o keep the storeroom locked

very location of inventory storage, whether in a locked storeroom or on the

production floor, should have a recordkeeping mechanism.

o convey the importance of accurate records to all personnel and depend on them
to assist in this effort.

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Cycle Counting

physical inventory taking technique in which inventory is counted on a frequent

basis rather than once or twice a year.

he key to effective cycle counting and, therefore, to accurate records lies in

deciding which items are to be counted, when, and by whom.

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Cycle Counting
1. When the record shows a low or zero balance on hand. (It is easier to count
fewer items.)
2. When the record shows a positive balance but a backorder was written
(indicating a discrepancy).
3. After some specified level of activity.
4. To signal a review based on the importance of the item (as in the ABC system)
such as in the following table:

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Accuracy Level

ome firms strive for 100 percent accuracy

ome accept a 1, 2, or 3 percent error.

he accuracy level often recommended by experts is

⌂ ±0.2 percent for A items,
⌂ ±1 percent for B items,
⌂ and ±5 percent for C items.

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Inventory holding point

his role is carried out by warehouse to facilitate the movement of goods through
the supply chain to the end consumer
 involve the holding of substantial inventory.
 holding of critical parts in case of breakdown.

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Warehouse operations

Collation is the assembly of written

information into a standard order.
(Data base)

Marshalling: assemble and arrange

in order.

Typical warehouse functions in a stock-holding warehouse

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Warehouse operations

eceiving
⌂ This typically involves the physical unloading of incoming transport, checking against purchase
orders and recording the incoming goods into the computer system.
⌂ It can also include such activities as unpacking and repackaging in a format suitable for the
subsequent warehouse operations.
⌂ Quality control checks may be undertaken as part of this activity. From here, the goods are then
put away in the warehouse.

eserve storage.
⌂ Goods are normally taken to the reserve or back-up storage area, which is the largest space
user in many warehouses.
⌂ This area holds the bulk of warehouse inventory in identifiable locations.
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Warehouse operations

rder picking
⌂ When an order is received from a customer, goods need to be retrieved from the warehouse in
the correct quantity and in time to meet the required service level.
⌂ If the order line is for a full unit load (e.g. pallet) then this can be retrieved directly from the
reserve storage area. However, if the order line is for less than a unit load (e.g. a number of
cases or items) then the goods will normally be retrieved from the picking location.
● Sortation
⌂ For small sizes of order, it is sometimes appropriate to batch a number of orders together and
treat them as ‘one’ order for picking purposes. In this case, the picked batch will have to be
sorted down to individual orders before dispatch.

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Warehouse operations

ollation and added value services.

⌂ Goods need to be organized into complete customer orders ready for dispatch. Unless the
goods are picked directly into the dispatch containers (e.g. directly into roll cages or into
cartons), they will be assembled or packed together after picking.
⌂ For example, the goods may be passed to a packing station where they are packed into a box.
This process may also involve value added services, such as kitting and labelling.

arshalling and dispatch.

⌂ Goods are marshalled together to form vehicle loads in the dispatch area and are then loaded
on to outbound vehicles for onward dispatch to the next ‘node’ in the supply chain
⌂ e.g. to a transshipment depot or to a freight forwarder’s depot for groupage/consolidation).
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How Amazon Receives Your Inventory

https://www.youtube.com/watch?v=dAXdeqcHBp4

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Thank you! Any Questions

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