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Warehousing Management

Objectives of Efficient Warehouse Operations


Provide timely customer service Keep track of items so they can be found readily & correctly Minimize the total physical effort & thus the cost of moving goods into & out of storage Provide communication links w/ customers

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Warehousing Management
Benefits of Warehouse Management
Provide a place to store & protect inventory Reduce transportation costs Improve customer service levels

Complexity of warehouse operation depends on the # of SKUs handled & the # of orders received & filled Most activity in a warehouse is material handling

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Warehousing Management
Costs of Operating a Warehouse
Capital costs
costs of space & materials handling equipment

Operating costs
cost of labor measure of labor productivity is the number of units that an operator can move in a day

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Warehouse Activities
Receive goods Identify the goods Dispatch goods to storage Hold goods Pick goods Marshal shipment Dispatch shipment Operate an information system
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Warehouse Activities
Receive goods
accepts goods from outside transportation or attached factory & accepts responsibility
check the goods against an order & the bill of lading check the quantities check for damage & fill out damage reports if necessary inspect goods if required

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Warehouse Activities
Identify the goods
items are identified with the appropriate stock-keeping unit (SKU) number (part number) & the quantity received recorded goods are sorted & put away goods are kept in storage & under proper protection until needed items required from stock must be selected from storage & brought to a marshalling area

Dispatch goods to storage


Hold goods Pick goods

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Warehouse Activities
Marshal the shipment
goods making up a single order are brought together & checked for omissions or errors; order records are updated orders are packaged, shipping documents are prepared, & goods loaded on the vehicle a record must be maintained for each item in stock showing the quantity on hand, quantity received, quantity issued, & location in the warehouse

Dispatch the shipment

Operate an information system

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Warehouse Activities
Maximize productivity & minimize cost, warehouse management must work w/the following:
Maximize use of space
space is the largest capital cost

Effective use of labor & equipment


labor is the largest operating cost material handling equipment is the second largest capital cost

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Warehouse Activities
Factors influencing effective use of warehouses
cube utilization and accessibility stock location order picking and assembly

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Warehouse Activities
Cube utilization and accessibility
Goods stored not just on the floor, but in the cubic space of the warehouse; warehouse capacity depends on how high goods can be stored Accessibility means being able to get at the goods wanted w/ a minimum amount of work

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Warehouse Activities
Stock Location
Objectives:
To provide the required customer service To keep track of where items are stored To minimize effort to receive, put away, and retrieve items

Basic Stock Locating Systems


Group functionally related items together Group fast-moving items together Group physically similar items together Locate working stock and reserve stock separately

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Warehouse Activities (Stock Location)


Fixed Location
SKU assigned a permanent location, & no other items are stored there Fixed-location systems usually have poor cube utilization Usually used in small warehouses; throughput is small, & there are few SKUs

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Warehouse Activities (Stock Location)


Floating (Random) Location
Goods stored wherever there is appropriate space Advantage is improved cube utilization It requires accurate and up-to-date information Warehouses using floating-location systems are usually computer-based

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Warehouse Activities (Stock Location)


Two other systems sometimes used are:
Point-of-use storage
Inventory stored close to where it will be needed Used in repetitive manufacturing & JIT systems

Central storage
Contains all inventory in one central location

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Warehouse Activities (Stock Location)


Advantages of Point-of-use Storage
Materials are readily accessible to users Material handling is reduced or eliminated Central storage costs are reduced Material is accessible all the time

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Warehouse Activities (Stock Location)


Advantages of Central Storage
Ease of control Inventory record accuracy is easier to maintain Specialized storage can be used Reduced safety stock, since users do not need to carry their own safety stock

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Warehouse Activities
Order Picking and Assembly
When an order is received, items must be obtained from the warehouse, grouped, & prepared for shipment, systems used:
Area system Zone system Multiorder system

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Warehouse Activities
Order Picking and Assembly
Area system
Order picker circulates throughout warehouse selecting items on an order -- order is ready to ship when order picker is finished

Zone system
Warehouse is divided into zones, & each picker works only in an assigned zone -- order is divided by zone, & the items from each zone are sent to the marshaling area

Multiorder system
Same as the zone system, except that each picker collects items for a number of orders at the same time

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Warehousing: Physical Control and Security


Physical Control & Security - Elements
Good part numbering system Simple, well-documented transaction system
Identify the item Verify the quantity Record the transaction Physically execute the transaction

Limited access
Inventory must be kept in a safe, secure (locked) place with limited general access

Well-trained workforce

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Warehousing: Inventory Record Accuracy


Accurate inventory records enable firms to:
Operate effective materials management systems Maintain satisfactory customer service Operate effectively & efficiently Analyze inventory

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Warehousing: Inventory Record Accuracy


Three pieces of information must be accurate:
Part description (part number) Quantity Location

Inventory is a tangible asset that is easy to lose track of unless properly controlled Inaccurate inventory records will result in:
Lost sales, shortages, & disrupted schedules Excess inventory (of the wrong things) Ineffective MRP / MRPII / ERP

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Warehousing: Inventory Record Accuracy


Causes of Inventory Record Errors
Unauthorized withdrawal of material Unsecured stockroom Poorly trained personnel Inaccurate transaction recording Poor transaction recording systems Lack of audit capability

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Warehousing: Inventory Record Accuracy


Measuring Inventory Record Accuracy
It is not practical to expect 100% accuracy. Tolerance
To judge inventory accuracy, a tolerance level for each part must be specified Tolerance is the amount of permissible variation between an inventory record & a physical count. Tolerances are set on individual items based on value, critical nature, availability, lead time, ability to stop prod., safety problems, or difficulty of measurement.

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Warehousing: Auditing Inventory Records


Two basic methods of auditing inventory:
Periodic (usually annual) counts of all items Cyclic (usually daily) counts of specified items

Auditing the system finds causes of record inaccuracy & eliminate them Cycle counting does this; periodic audits tend not to

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Warehousing: Auditing Inventory Records


Factors in good preparation for a physical inventory are:
Housekeeping Identification Training

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Warehousing: Auditing Inventory Records


A physical inventory consists of four steps:
Count items & record count on an attached ticket Verify this count by recounting or by sampling When the verification is finished, collect the tickets & list the items in each department Reconcile the inventory records for differences between the physical count & inventory dollars

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Warehousing: Auditing Inventory Records


Problems with annual physical inventory:
Usually the factory/facility has to be shut down, thus losing production or business Labor & paperwork are expensive Job is often done hurriedly & poorly since there is much pressure to get it done Many times, more errors are introduced than are eliminated
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Warehousing: Auditing Inventory Records


Cycle Counting
A system of counting inventory continually throughout the year Advantages of cycle counting:
Timely detection & correction of problems Complete or partial reduction of lost production Use of personnel trained & dedicated to cycle counting

Count frequency
Number of times an item is counted in a year

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Warehousing: Auditing Inventory Records


Count Frequency should increase as the value of the item & number of transactions (chance of error) increase, e.g., base the frequency of count on
annual dollar value usage

Methods used
ABC Method Zone Method Location Audit System

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Warehousing: Auditing Inventory Records


Cycle counts can be scheduled at regular intervals or special times When to Count
When an order is placed When an order is received When the inventory record reaches zero When an error occurs

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