11DSCI4743 Warehousing Management Objectives of Efficient Warehouse Operations –Provide timely customer service –Keep track of items so they can be found

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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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• 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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• 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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• Identify the goods– items are identified with the appropriate stock-keeping unit (SKU)

number (part number) & the quantity received recorded

• Dispatch goods to storage– goods are sorted & put away

• Hold goods– goods are kept in storage & under proper protection until needed

• Pick goods– items required from stock must be selected from storage & brought to

a marshalling area

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• Marshal the shipment– goods making up a single order are brought together &

checked for omissions or errors; order records are updated

• Dispatch the shipment– orders are packaged, shipping documents are prepared, &

goods loaded on the vehicle

• Operate an information system– a record must be maintained for each item in stock showing

the quantity on hand, quantity received, quantity issued, & location in the warehouse

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• 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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• Factors influencing effective use of warehouses

– cube utilization and accessibility

– stock location

– order picking and assembly

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• 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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• 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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• 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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• 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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• 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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• 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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• 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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• 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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• 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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• 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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• Factors in good preparation for a physical inventory are:– Housekeeping

– Identification

– Training

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• 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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• 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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• 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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• 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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• 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

Documents

11DSCI4743 Warehousing Management Objectives of Efficient Warehouse Operations –Provide timely customer service –Keep track of items so they can be found