Warehousing and Inventory Management - Essay Example

WAREHOUSING AND INVENTORY MANAGEMENT Introduction With the current business scenarios of electronic commerce, rapid expansion of communication technologies and customer reach to multi vendor, multiproduct marketplace fuelled by the growth of internet, functions of warehouses are becoming more dynamic in nature. Warehousing is a necessity for virtually any kind of supply chain. Pressure to reduce inventory and costs for market competitiveness requires a better warehouse management. Businesses with warehousing requirements need to determine if they have adequate warehousing facilities to meet growing demands. Traditional warehousing and inventory management processes need to be replaced with modern automated electronic systems to remain competitive. The process of warehouse and inventory management involves recording and tracking of materials on a quantity and value basis (Tompkins, J.A. and Smith, J.D., 1998). Warehousing and inventory management includes all the process for planning, entry, and documentation of goods movements. Warehouse Management Processes cover warehouse-internal movements and storage of materials. A warehouse management basically includes three processes: 1. Receiving goods from a source 2. Storing goods until they are required by a customer or a internal process 3. Retrieving the goods as and when requested Chapter1: Warehouse space and layout planning Planning a new warehouse requires some basic decisions. Before starting planning you need to increase available space to its optimum level by using some basic common sense such as getting rid of any junk equipment or goods that is not required to be stored, using JIT deliveries and shorter runs to reduce inventories and use of racks (Tompkins, J.A. and Smith, J.D., 1998, David E. Mulcahy, 1993). All successful warehouse layouts must accomplish the following objectives, regardless of material being stored: Maximize the use of space Maximize the use of equipment Maximize the use of labor Maximize accessibility to all items Maximize protection of all items Warehouse space planning should be done keeping in mind the nature of inventory. For example you have to design deep rows if your warehouse is intended to store large quantities of few SKUs and you need to plan shallow rows with many faces if you are going to store small quantities of many SKUs. Planning Aisles: Planning aisle width depends on your decisions such as the type of trucks you will be using and priority among time and space. Aisle width should be according to width of lift trucks used, it should allow free movements of truck. Planning Rows: Planning rows also depends upon the size of lift trucks used. Space between rows should allow a free movement while saving space. Planning Docks: You should take extra care for planning docks as these are busiest part of warehouse operation. Number and placing of the docks depends upon the estimation of how many lift trailers will be handled and of what sizes. Following figure (source: Askin and Standridge) shows a basic ideal lay out: Systematic Layout Planning It is a manual design methodology developed by Muther (Richard Muther, 2004). Following diagram shows various steps of a systematic layout planning: The basic steps of this method are: Data collection (type of goods, Quantity of each product to be produced, Routing for each product, and the Schedule of delivery) and Flow Analysis to identify in and out of goods. It considers quantity of material flow, as well as overall flow lines that could be better in the implementation of departments. Quantitative analysis: analysis of quantifiable factors such as flow costs. Quantitative analysis is done using relationship diagrams. Relationship Diagram: these diagrams are used to quantify relation between source and various destination of delivery. It combines quantitative and qualitative analysis. Relationship diagrams are used for efficient layout planning (Maida Napolitano, 2003). Relationship diagram is the quantitative matrix containing the level of interaction between pairs of departments. The more positive the element in the matrix the stronger two departments interact and, in general, the closer to each other they should be located. In following figure illustrates a sample relationship diagram. If we add total point for each department from above relationship diagrams we get a relationship chart which helps in layout decision making. Department Total points Dep A 3+2+3+2+5 = 15 Dep B 2+0+1+1+4 = 8 Dep C 11 Dep D 10 Dep E 11 Dep F 3+4+4+4+5 = 20 Above chart shows that: Dep F has the highest points, so it will be placed in the center of the layout and other departments will be placed around the Dep F according to their points, higher the oint closer to the Dep F. Using these considerations, we will be having our layout as follows: Chapter2: Warehouse operations management The main purpose of warehouse operation management is to provide services and materials to support a supply chain of any business at right time. An inefficient warehouse management adversely affects the profits of an organization (Russell, R.S. and Taylor, 2003). Warehouse management is all about aligning all warehouse processes in such a way that the proper services and materials can reach to its intended client as and when required with a minimum effort. It has been observed in various industries that building an efficient warehouse management does not require much resource. Warehouse management is more concerned with practices. Warehouse operation can be made more agile and efficient if you accurate inventory information. If do not have accurate information of inbound and outbound goods movement, warehouse operations get sluggish (Edward Frazelle, 2001). Following are some of the considerations to make a warehouse operation management more efficient and meet the challenges: Thinking strategically Thinking strategically is all about thinking a solution for problems facing the warehouse with minimal resource investment. For example if warehousing operations are unable to withstand the pressure of supply chain, think about the way operations are done rather than just going for costly equipments. You should always be open to changes that can improve the efficiency of warehousing operations. Day-to-day operations observation You should always keep an eye on day to day operations and try to assess the efficiency of systems. Auditing of operations should be done at regular intervals to find out any issue which is inhibiting the warehouse operation. Training of the staff Training of the staff is very critical for a successful warehouse management. Staff should be adequately trained in various warehousing procedures. Unawareness of employees to better warehousing practices gives rise to poor quality, low productivity, and safety issues. Supervisors and managers should periodically communicate their employee better warehousing policies and procedures (Stuart Emmett, 2005). Training staff generally does not require much investment but it can work magic for a warehouse operations management. Availability of Tools Warehousing staff should be properly equipped with required tools. Warehousing practices generally requires low cost tools such as Pallet Jacks, Hand Trucks, Stock Carts and Rolling Ladders which are not to costly but are very necessary for warehouse operations. Equipment maintenance Proper maintenance of warehouse equipment is necessary for both a productive and safe warehouse. All tools and equipments should be kept in a proper place taking consideration of easy and safe handling. Management policy should insist on immediate reporting of any malfunctioning of equipment. There should be periodical maintenance check for all the tools and equipments to ensure their proper functioning. Equipments such as lift trucks, conveyor systems, and automated material handling equipment, dock equipment, stretch wrapping machines, palletizers, bailers, and compactors should be serviced at regular intervals.Organizations should develop contingency plans to overcome any untoward incidents due to equipment failures. Temperature maintenance A comfortable temperature level should be maintained in warehouse. This temperature level can vary according to material stored in the warehouse. In case of storage of inflammatory materials and medicine temperature should be strictly controlled within a certain limit. Identification of goods Goods and racks should be properly marked for easier identification. This helps in an efficient order picking and put away. Clear identification of storage areas and staging lanes eliminates congestion in warehouse and facilitate smooth movements of goods. Following are some that can be taken for easy identification in a warehouse: Use label on pallets and cartoon. Label should be in easily readable format. Use location labels on storage shelving and pallet rack positions Use signs to identify aisles Tape or paint floors to designate floor storage areas and staging lanes in dock areas Use boards with arrows to indicate the location of various facilities Chapter3: Case Study of the use of information technology in the warehouse Use of information technology has helped the warehousing management in a big way. There are computer assisted systems to automate most of the warehousing processes. Warehousing space and lay out can be planned by using processing powers of computers running warehouse management software application. Integrated systems have been developed for automation of various processes such as inventory management and receiving and shipping of goods. These system uses network of computer systems, barcode readers, RFID data collection systems and handheld processing devices with the traditional warehouse equipment such as forklifts, pickers, conveyors, pellets, and racks. An integrated Warehouse Management System can provide the following functionalities: Receiving of the goods: Each arriving pallet or cartoon has a barcode label which identifies both the stock-keeping unit (SKU) and case-pack quantities. This information is scanned using portable scanners operated by workers or stationary readers mounted along the conveyor lines. The scanned data is transmitted to a host computer through a radio-frequency wireless communications link. Storage/put away of goods: If the inventory is to be stored, these systems designate a storage location for it automatically, and, when the unit is delivered to its storage, the system verifies that the storage location is as designated. Picking: The WMS receives orders and schedule picking activities. Workers on lift trucks equipped with RFDC terminals are directed to storage locations. Picked inventory are scanned so that the WMS can verify the pick accuracy and update the inventory database. Shipping: The warehouse management systems assigns docking areas to shipping inventory according to various inputs provided to them. Once the orders arrive at the shipping station, these systems can generate packing and shipping labels, possibly working in conjunction with weighing equipment and shipping manifest systems. Tesco Warehouse Management System case study Tesco is one of the world's leading international retailers. Since the company first used the trading name of Tesco, in the mid 1920s, the group has expanded into different formats, different markets, and different sectors. It has its presence in UK, Czech Republic, Hungary, Poland, Rep. of Ireland, Slovakia, Turkey, China, Japan, Malaysia, South Korea, and Thailand. The principal activity of the group is food retailing, with over 2,500 stores worldwide. Tesco has a long term strategy for growth, based on four key parts: growth in the Core UK business, to expand by growing internationally, to be as strong in non-food as in food and to follow customers into new retailing services (Source: Tesco). The Challenge In the highly competitive supermarket and retail sector, customers are looking for a wide variety of quality products, available 24 hours a day and at the right price. Successful retailers must continuously balance all aspects of their supply and demand chain management and invest in the IT infrastructure to meet the exacting requirements of both customers and shareholders. Despite Tesco practicing a robust "I Don't Queue" policy, in December 2006 The Grocer magazine published a study which named Tesco as having the slowest checkouts of the six major supermarkets. Workers charged with data collection filled numerous orders per day at a fast pace, which increased the risk of human error very early in the supply chain. Sales managers also rushed between offices and distribution centers to check stock/delivery status, taking their focus away from sales and customer service. And warehouse controllers spent extra time on manual bookkeeping to ensure data accuracy. The company recognized the direct impact these inefficient business processes were having on sales, customer service, and productivity. The Solution To face theses challenges Tesco has taken a variety of steps that include use of information technology and modern methods of warehouse, inventory, and supply chain management. Tesco engaged IBM in 2001 to consult them on the issues of web-enabling their stores worldwide on a wireless platform. Tesco contracted Intermec Technologies to supply 700 Color handheld computers, for a wireless web-enabling solution. These systems provided a powerful platform which Tesco used to support an integrated value chain from supplier through to the end customer. Tesco used RFID technology to monitor stock of DVDs in some stores. As DVD merchandize needs fast replenishment. Tesco reported a 4% increase in sales as a result of using RFID to monitor stock outs. Tesco had planned to install RFID tags and readers in 1,400 shops and 30 distribution centers by the middle of the year 2006. The Benefits Tesco improved business processes and enhanced productivity for a more efficient warehouse management system, which led to further cost savings in the supply chain. Tesco operates the world's largest grocery home shopping service, as well as providing consumer goods, telecommunications, and financial services online. Tesco sales managers now focus on sales, dramatically improving customer service. Warehouse controllers address more inventory management concerns and worry less about accuracy of data and physical stock. Chapter4: Modern methods of inventory management Modern methods of inventory management focus on automation of processes. All these methods of inventory management are together called Automatic identification and data collection (AIDC). These technologies can be effectively used for efficient warehouse, inventory and supply chain management (Tony Wild, 2002). Barcode and RFID smart labels can be used for simple and convenient data gathering and managing asset information in a timely and efficient manner. Data collected by barcode scanners and RFID reader machines can be automatically fed to asset and inventory management software applications to get a real time and accurate inventory information. This results in automation of various cumbersome inventory management processes and hence improves the asset utilization and increases the productivity which positively affects the business profits. Barcodes and Barcode scanners Barcodes are machine-readable representation of information in a visual format using lines and spaces on a surface. Barcode readers are the machines used to read barcodes. They range in sophistication from simple wand-type devices that need to be directly interfaced to a computer for capturing and storing the data obtained, to computer based terminals with processing and storage capability, and the facility to transmit data through a wireless link to an appropriately equipped information management system. Use of barcodes in a warehouse can automate certain process and enable an efficient goods management. Barcodes can be used to uniquely identify the materials being shipped in or out. Barcode scanners can be used to automatically update the inventories and eliminates the need of manual record keeping. For example use of barcodes by Wix Filtration, a manufacturer of oil, air, fuel, cabin interior and hydraulic filters, has seen reduction in their daily downtime and system lock-ups to a stable, intuitive, easy-to-use system. RFID Identification and recording of all the goods coming in and going out of warehouse is the main concern of an inventory management. Barcode and use of RFID simplify and automate the process of information gathering and analysis in accurate manner. Radio-frequency identification (RFID) is an automatic identification technique used for storing and remotely retrieving information using devices called RFID tags or transponders. An RFID tag is a semiconductor microchip with or without battery that can be implanted into a product, animal, or person for the purpose of identification and tracking using radio waves. RFID technology is a evolving rapidly. It can play a major role in identification and tracking of materials and automate the process of inventory management to a large extent. An RFID tag can be embedded various equipments to identify the equipment, make of equipments, date of installation, updated information whenever service or inspections were performed and then when the next service or inspection date is. Workers who service the machine could read the tag to learn the most recent work performed or service history, which is extremely advantageous for remote asset management where personnel may not have access to enterprise databases and service records. Major retailing companies such as Wal-Mart and Tesco, which heavily depend upon their warehouse and inventory management, have already started the implementation of RFID technology in number of ways to streamline their supply chain and manage inventories. According to various studies RFID technology is going to attract a lot of attention and investments next five to ten years. RFID can provide business a competitive edge and can reduce the investment for warehouse and inventory management significantly. It has the potential of improving supply chain visibility, lowering operating cost and enhances the profits for business. The benefits of RFID encompass the whole supply chain - from the manufacturer to the distributor to the retailer to the consumer. Handheld computers and palmtops Handheld devices can be used for on the spot data entry and data retrieval. Warehousing and inventory management staffs need not to run to their desks to get the information which can save a lot of time and enables an efficient inventory management. Inventory Models Calculating optimal order quantities and reorder points basic tasks associated with inventory management. Several inventory model such as Economic Order Quantity (EOQ) have been developed and used by inventory managers to calculate optimal order quantities well before the invent of automated software applications (Wilson, R. H., 1934). Total cost function can be represented as follows: TC(Q) = PR + CR/Q + PFQ/2 Where Q = optimal order quantity C = cost per order event (not per unit) R = monthly (annual) demand of the product P = purchase cost per unit F = holding cost factor; the factor of the purchase cost that is used as the holding cost H = holding cost per unit per month (H = PF) Minimum value of above cost function is considered as optimal economic order quantity. = (PR + CR/Q + PFQ/2) = 0 Solving the above equation for Q we get, PF/2 = CR/Q2 Q = Q in above formula gives an optimal Economic Order Quantity (EOQ). EOQ determinesthe point at which the combination oforder costs and inventory carrying costs are the least.The result is the most cost effective quantity to order. Inventory Management Software Tools There are various tools for inventory management. Selection of an appropriate tool is important factor in solving the intended function of application. Software selection and implementation services for the tool are a major business for consulting firms and software vendors. Some of the major functional requirements of these software tools are: Compatibilities with other inventory management applications Support for e-commerce and online business Forecasting and demand planning Back-order processing Lot or serial number tracking Forward pick location replenishment Batch or wave order picking Back flushing inventory Multiple stocking units of measure Shipment consolidation SAP and Oracle are leading vendors for warehouse, inventory and supply chain management applications. Apart from these there are numerous tools such as Sales Manager Pro, Sentais Trax Distribution and Pinpoint warehouse management software, Spirit Works' Inventory Tracker Plus that can be used for an efficient warehouse and inventory management. Selection of these tools depends upon the size of your warehouse, inventory and affordability. Conclusion The discussion in above chapter shows that warehouse and inventory management need a concerted effort. It enables organization to be at competitive edge over their competitors. An efficient warehouse and inventory management can improve the function of company bottom-line and increase profits. Warehouse management is not just storing goods and moving orders out of the facility; it includes development or implementation of a system to process customer requirements, carrier requirements and delivery specifications in advance to meet the market challenges (Bowersox, DJ, Closs, DJ and Cooper, 2002). Staffing warehouse adequately with man power and equipments to meet inbound and outbound shipment volume is critical for maximizing warehouse operation speed. Implementation of a right warehouse management system and use of modern method of warehouse management are necessary to meet growing customer demands. Use of information technology, barcodes, and RFIDs should be considered for a better information management and support supply chain. References: 1. Tompkins, J.A. and Smith, J.D. (1998), The warehouse management handbook (2nd edn.), Raleigh, NC: Tompkins Press. 2. David E. Mulcahy, Warehouse Distribution and Operations Handbook, McGraw-Hill Professional; 1 edition (September 1, 1993). 3. Stuart Emmett, Excellence in Warehouse Management: How to Minimise Costs and Maximise Value, Wiley (July 18, 2005). 4. Maida Napolitano, Je Gross & Associates, The Time, Space & Cost Guide to Better Warehouse Design, Second Edition, Distribution Group; 2nd edition (September 2003). 5. Edward Frazelle, World-Class Warehousing and Material Handling, McGraw-Hill; 1 edition (September 18, 2001). 6. Waters, D. (2003) Logistics: an introduction to supply chain management, Basingstoke: Palgrave. 7. Bowersox, DJ, Closs, DJ and Cooper, MB (2002) Supply chain logistics management, London: McGrawHill. 8. Rushton, A., Oxley, J. and Croucher, P. (2000) The handbook of logistics and distribution management (2nd edn.), London: Kogan Page. 9. Russell, R.S. and Taylor, B.W. (2003) Operations Management (4th edn.), Harlow: Prentice Hall Inc. 10. Wilson, R. H. "A Scientific Routine for Stock Control" Harvard Business Review, 13, 116-128 (1934). 11. Inventory Operations Consulting L.L.C. website, http://www.inventoryops.com/ 12. Reed Business Information Website, http://www.logisticsmgmt.com/ 13. Industrial Market Trends website, thomasnet.com 14. Cavinato, Jo.,& Kauffman, Ralph G., Purchasing Handbook Sixth Edition, New York: McGraw-Hill, 2000. 15. Max Muller, Essentials of Inventory Management, AMACOM/American Management Association; 1st edition (November 2002). 16. David J. Piasecki , Inventory Accuracy: People, Processes, & Technology, Ops Pub. (March 2003). 17. Tony Wild, Best Practice in Inventory Management, Second Edition, Butterworth-Heinemann; 2 edition (August 9, 2002). 18. Edward Frazelle, World-Class Warehousing and Material Handling, McGraw-Hill; 1 edition (September 18, 2001) 19. Tesco media information webpage, http://www.tescocorporate.com Read More