ABC Corporations Warehouse Operations - Case Study Example

Evaluating ABC Corporation’s warehouse operations and proposing optimizing strategies Introduction This paper tries to evaluate ABC Corporation’s warehouse operations and propose optimizing strategies in the following warehouse operations: inventory model, order entry and order processing, receiving and staging, inspection and quality control, putaway, storage, order selection and replenishment and checking packing shipping. ABC Corporation is quiet old for it still uses paper works; there is a need to improve its storage selection and replenishments. It is shown in Illustration 1 the current set up of ABC Corporation distribution system. As noted below, ABC warehouse does not directly coordinate with its customers. It is the sales department which tries to create strong contact with them. However, based on the above illustration, the warehouse department plays significant role in order that the sales department can impressively implement their functions to satisfy their customers. For instance, it is necessary that the availability of stocks at the warehouse must always ensure customer satisfaction. It is important then that there is a strong coordination between warehouse and sales department in order to satisfy customers and future transactions to remarkably reach excellent service and company’s target revenue. Illustration 1. The current set up of ABC’s distribution system On the other hand, it is the warehouse department that needs to coordinate directly with the finance and accounting department for the delivery of items coming from the suppliers. Therefore, the warehouse department remarkably needs to create contact to different suppliers prior to receiving inventory. However, before the approval for delivery of inventories, the entire transaction between warehouse and suppliers must be duly approved by the accounting and finance department. This system is what the company views to be remarkably good for proper functioning of the entire firm. However, there are problems involved in every department. The warehouse department alone has corresponding problems and these involve its basic functions such as receiving, storage, order picking and shipping (Gu et al., 2007). All of these are basic problems that are widely observed in ABC Corporation warehouse. Based on these, the proponent tries to identify the work flow between the warehouse and other departments so as to point out some other improvements for future development. Inventory control Inventory is an important activity in business. With inventory, the business continues to operate in a way there is a healthy flow of products and services without the need to compromise the entire operation. With a healthy inventory system, business is expected to function well up to its maximum potential. That is why there are many sophisticated techniques today that are applied in inventory control and they are about determining order quantities and other forecasting techniques to determine demand of the products (Zomerdijk and Vries, 2003). ABC Corporation’s warehouse needs to determine the quantity demanded and the needed quantity of products to be stored in order to ensure a healthy flow of business. This is where the importance of inventory control comes to play. Its inventory needs to be improved and part of achieving successful inventory control is to store data and information and other inventory-related concerns for future use. For instance, it is important to have data that will help determine the demand of products in season. Thus, proper handling of data is necessary because through them, various forecasting techniques and other related techniques will be effectively used in order to determine demand of products. The determination of demand is important so as not to overstock or fall short of stock. Therefore, ABC Corporation’s warehousing system must be able to know the importance of inventory control so as not to overstock or fall short of stock. In order for its warehouse to consider a good inventory control, it is important to study the prevailing demand of the market. This can be found out by studying previous inflow and outflow of stocks. The only way to determine this is to set an efficient recording system that will be used to identify future demand of stocks. Having this system is one of the means of applying necessary forecasting techniques that will help determine the needed stock. Inventory control therefore requires sophisticated techniques for future determination of needed stocks. This can be a complicated process but the whole point is to ensure better stock management as well as savings from any additional cost of holding unnecessary inventory. Thus, reorder point is necessarily to be pointed out for it triggers replenishment in the inventory control system (Grubbstrom and Wikner, 1996). It is important to consider that cash must be effectively used for other investment so they must not be wasted on unnecessary inventory level. Order entry and order processing Order entry starts from the customers themselves. Placing of order requires system check in which the desired stock will be identified. In this system, the inventory of the desired product will be identified including their availability and including other major features that the customers may be looking for. In reality, order entry is an integral part of order processing. Customers nowadays are always looking forward to quality service. With effective order processing system, the product flow is smooth and customers are given the chance to be given the right service they deserve. The end result of having effective order processing system is customer satisfaction, decrease of costs and cycle time and increase of profits (Pride and Ferrell, 2007). It is therefore important to have advanced order processing system. In the case of ABC Corporation’s warehouse, there is significantly a need for computerisation especially at the order entry level. If customers call via phone, sales associates will definitely have easy access to the inventory level of available stocks. This improves quality of customer service and thus would ensure increase of sales. On the other hand, ABC Corporation’s warehouse requires online ordering system via email so that it can determine which products are placed by the customer prior to pick up level. This would also ensure that its inventory control will be properly managed. It needs to come up with a refine management information system that can link important information between the sales department and warehouse in line with the inventory level and other related concerns. The order processing in ABC Corporation’s warehouse is definitely old. In today’s advancement of information technology, it is important to understand that every business seems to go for computerisation of the system flow of products and services and other offerings. ABC Corporation’s warehouse needs to be more systematic. In this way, the order processing and especially the order entry will not be delayed. ABC Corporation’s warehousing needs to have direct link with the sales department so as to ensure better consumer service and management system through the use of a database. Warehousing plays significant part in ABC Corporation considering that all stocks are to be stored and they will be pulled out once customers try to place orders. Thus, in order to maximise its time and the customer’s time, it needs to improve the old system it is currently employing at its warehouse, which can be significantly answered by the use of a database. Receiving and staging Inventory accuracy is a very important consideration at ABC Corporation. This significantly is placed at its crucial part in its warehouse. ABC Corporation warehouse requires accuracy knowing that the inventories are unconverted cash of the company. The company’s invested capital is still in the form of inventory. This is a significant reason why there is a need to ensure inventory accuracy in the first place. At ABC Corporation warehouse, there are just two essential receiving problems that need to be addressed. The first one is receiving processing problem which is generally the case when stocks are not processed quickly enough and the second receiving problems is about receiving transaction problem or generally an inventory problem (Piasecki, 2003). ABC Corporation generally has inventory problem considering that there is a need to enhance further its inventory control. Such problem can be addressed if there is a way to eliminate the problem especially on receiving. Staging location on the other hand is another important concern. This is in line with inventory control which is in line with monitoring of quantities. As mentioned earlier, it is necessary not to delay customers especially on the level of receiving processing and receiving transaction. Thus, staging location needs to be updated since the entire transaction under receiving stage relies on the information obtained in staging process. Inspection and quality control ABC Corporation’s offerings such as cookers, washing machines and tumble dryers require inspection as part of quality control prior to receiving them as inventories. This is to ensure that all of its inventories are to be received by its customers in good working condition. Quality control is very important considering that most of those products that ABC Corporation has are under the form of inventory. Holding inventory is very costly. It requires for the company to dispose those products under inventory right away. It is important to dispose as many inventories as possible to significantly convert them into cash for healthy cash flow of the operation. In order to come up with healthy cash flow, it is important to consider that those products under the inventory should be of good quality so that anytime they can be easily converted into cash. Holding bad quality of products at ABC Corporation’s inventory has specific disadvantages for the company considering that customer satisfaction is one of the primary considerations of its business. Customers who had bad experience with its products are most likely not to conduct business with the company again. This negative implication will result to customer erosion and this eventually would lead to low revenue and eventually will result to unhealthy cash flow prior to eventual closure of the business. Other significant negative impact on this is to leave the company with significant amount of debt and other payables. Considering that the company will not be able to provide enough amount of revenue due to quality problems of the products, the cash flow of the operation is significantly poor. There will be no enough cash to pay obligations. Thus, company’s liquidity will be compromised. This is how important it is to maintain high quality for the products at ABC Corporation inventory. Thus, there is a need to go for proper inspection and monitoring of its products in order to significantly maintain good quality control condition. Good quality control condition is one of the most significant moves in order to maintain company’s liquidity because it is in this way that customers are given with the satisfaction they deserve. Those satisfied customers are most likely to create referral or repeat order with the company. At this moment of time, ABC Corporation’s inspection and quality control need significant improvements. Inspection is necessary and there must be significant checklist that must be used to identify specific product function and features. Quality control requires not just important checklist but this must also include further research about the products to ensure proper handling and to specifically support major concerns especially in line with the quality of the products. Research here would involve necessary and practical ways on how to store the products. This would also include proper handling so as to ensure optimum care. This means that a research and development department needs to be instituted for the sake of inspection and quality control of the products. Other way of ensuring quality of our inventories is to practice first in first out strategy in disposing them. In this way, the quality of those former inventories will be taken into consideration by regular inspection so as to ensure that they still qualify for disposal. This will create specific competitive advantage because products are ensured to be always fresh and something new upon disposal. Thus, it is highly recommended to come up with Research and Quality Control Department in order to sufficiently address quality control concerns. The proposed working system is shown in Illustration 2 below. Illustration 1. The ABC’s distribution system with Research and Quality Control Putaway So far, there is no specific problem with putaway for as long as other concerns in the warehouse are addressed accordingly. This is to say that putaway will just follow accordingly because activities prior to it are substantially addressed and are executed well. For as long as proper schedule and multiple cycle time are implemented accordingly, warehousing will always have smooth and progressive flow (Koviacs, 2010). Storage Storage is another concern of ABC Corporation’s warehouse. Storage location is one of the most common considerations for warehouse managers in times of design or refurbishment of existing facility (Chan and Chan, 2010). Storage is necessary in ABC Corporation’s case because this is how it could give maximum care for its inventories. Storage is important because this will create additional care for the quality of its products. In ABC Corporation’s case, it needs to consider factors affecting its storage assignment. There are various factors to be determined and these involved the following: order picking method, size and layout of the storage system, material handling system, product characteristics, demand trends, turnover rates and space requirements (Chan and Chan, 2010). The company normally has shortage of space for its stocks when it gets delivery from the suppliers. The usual scenario is that it only has minimum space for its stocks. At this moment, one of the possible ways is to consider adding additional space for storage. Warehouse design is the usual problem in warehousing (Rouwenhorst et al., 2000). This means that the entire warehouse must essentially consume or maximize its space. Additional set up is needed in order to maximize the space inside the warehouse. This involves renovation of the current set up, but without paralyzing the operation on the process. There is a need to come up with a good layout for its warehouse system. The advantages of increasing the space in its storage involve improvement of the total order retrieval time of picking and it can also improve its routing policy. Normally, ABC Corporation’s customers will have to wait for a long time before they can pick their orders because of the actual organization of storage. There are some inventories that will take time before they can be retrieved and given to its customers. This means that there is exactly a waste of time on the part of customers and in the company’s part resulting to poor level of customer satisfaction with the kind of service provided. It is necessary therefore to correct the way the company is use to store its inventories plus the limited space involved in it. Since the company only has limited amount of space for its inventories, what it can do for now is to evaluate what are the fast-moving products. The study of Chan and Chan (2010) found that there is an association between items in the customer’s order and the storage assignment. The company needs to necessarily pull out those products that for a long time have been stored in the warehouse. It can either have them on sale or include them in the promotion by creating a demand for them. For instance, the company can always involve the buy one take one policy. Once a certain customer buys an average moving product, he or she will get corresponding product which is slow moving. In this way, the company is encouraging fast turn over rate of products and this means additional space for new coming products. In this case, the company is not only encouraging space for its storage but additional revenue will be obtained to essentially make its cash flow healthy. Storage assignment policy and routing methods need to be investigated as well (Chan and Chan, 2010). Storage assignment policies involves random, dedicated or class-based. On the other hand, routing methods involve transversal, return or combined. If these factors are to be considered, then it might as well useful if ABC Corporation’s warehouse will adapt the multi-level rack instead of manual-pick warehouse. Aside from it saves time and satisfy customers’ expectations for its service, this will also create maximisation of space. However, it might be costly in the process, but the assurance of a well-organised storage system is highly ensured. As of the moment, there is no need to find for additional warehouse because it can be costly knowing that handling inventories alone can be very costly in the process. What the ABC Corporation can do for now is to try to evaluate its current storage system and find out if there is any way it can still maximise the space. Order selection and replenishment As mentioned earlier, ABC Corporation needs to find out if there is any space it can maximise in order to make use of the storage system to the fullest. In this way, it can implement the right system for order selection and replenishment considering that warehouse storage space is highly associated with it. Order selection is identified as one of the most labour-intensive and costly for almost every warehouse considering that an estimated 55% of total warehouse expense goes to it (De Koster et al., 2007). Customers need to be catered excellently when it comes to order selection. ABC Corporation’s warehouse needs to ensure proper distribution system by picking products from the inventory and filling the needs of customers such as direct and retailers. This is a very expensive process because it needs proper monitoring system. In the case of order selection, ABC Corporation’s warehouse needs to ensure to monitor the demand of its customers so that they can eventually be given the service they deserve when it comes to replenishing their sold items. Sales department needs to properly monitor the inventory with ABC Corporation in the warehouse. In this case, there is a need to properly address the needs of customers which have to be executed by the sales department. Proper coordination and presentation of data need to be integrated together as combined and important information in order to create decisions that are in line with the whole flow of the business. Sales must not necessarily allow transactions with customers without prior complete information of inventory in the warehouse. Checking, packing, shipping Prior to the delivery of items, checking them is necessary for the basis of internal control and close monitoring of inventory. Checking means complete check up of the item’s quantity, quality and other related concerns. This is to ensure customer service satisfaction and for firm’s total control of its inventory. Packing is another concern for it involves equipped manpower. In this case, it is important to provide necessary trainings for personnel who are in charge to this type of task. However, picking and packing must not be separated. It was found that if these two are separated, in warehouse management system they will create longer operating time (Shiau and Lee, 2010). Shipping is another important concern because it generally talks about logistic concerns. So far, the only problem with shipping is the timely delivery of the item because at some point the whole process cannot be controlled by the company. However, the appropriate and timely delivery of the item from the suppliers to the warehouse can be remarkably implemented with excellent coordination. Such kind of coordination must be essentially focused between the suppliers and the warehouse as approved by the accounting and finance department. All of these are for the sake of having control over the operation. After all, control is basically one of the basic problems encountered in warehousing (Rouwenhorst et al., 2000). In order to obtain this control, it is necessary to come up with the following functions for the warehouse department as what are entirely discussed in the whole paper so far. Shown in Illustration 3 are revised functions that must be implemented by the warehouse department of ABC Corporation. Illustration 3. Revised warehouse functions of ABC Corporation Recommendations The proponent of this paper believes that there is a substantial need to re-organize and add some specific functions in the company so as to maximize the full potential of the warehouse department prior to substantially performing its role. The proponent believes that the major optimization must start within internal control and such can be implemented within the area of responsibility of the warehouse department. However, this cannot be totally performed without the aid of other important departments instituted in the company to coordinate with the warehouse department prior to performing its role to the fullest potential. Conclusion Warehouse department of ABC Corporation is not just a mere storage system of the company for its inventories. There are substantial functions that it needs to contribute to the company to further enhance customer satisfaction. The bottom line in conducting evaluation and maximizing strategies in the warehouse department is to be able to cater the needs of the operation to essentially contribute to customer satisfaction at its highest level. Thus, there is a need to actually look at the responsibility centre where inventories have to be properly control, monitored or evaluated in both quantity and quality. References Chan, F. T. S. and Chan, H. K. (2010) ‘Improving the productivity of order picking of a manual-pick and multi-level rack distribution warehouse through the implementation of class-based storage.’ Expert Systems with Applications, Vol. 38(3): 2686-2700. De Koster, R., Le-Duc, T., and Roodbergen, K. J. (2007) ‘Design and control warehouse odrder picking : A literature review.’ European Journal of Operational Research, Vol. 182(2): 481-501. Grubbstrom, R.W. and Wikner, J. (1996) ‘Inventory trigger control policies developed in terms of control theory.’ International Journal of Production Economics, Vol. 45 (1-3): 397-406. Gu, J., Goetschalckx, M. and McGinnis, L. F. (2007) ‘Research on warehouse operation: A comprehensive review.’ European Journal of Operational Research, Vol. 177(1): 1-21. Koviacs, A. (2010) ‘Optimizing the storage assignment in a warehouse served by milkrun logistics.’ International Journal of Production Economics. Piasecki, D. J. (2003) Inventory accuracy: people, processes,& technology. USA: OPS Publishing. Pride, W. M. and Ferrell, O. C. (2007) Foundations of Marketing. USA: Cengage Learning. Rouwenhorst, B., Reuter, B., Stockrahm, van Houtum, G. J., Mantel, R. J. and Zijm, W. H. M. (2000) ‘Warehouse design and control: Framework and literature review.’ European Journal of Operational Research, Vol. 122(3): 515-533. Shiau, J. Y., and Lee, M. C. (2010) ‘A warehouse management system with sequential picking for multi-container deliveries.’ Computers & Industrial Engineering, Vol. 58(3): 382-392. Zomerdijk, L. G. and Vries, J. de (2003) ‘An organizational perspective on inventory control: Theory and a case study.’ International Journal of Production Economics, Vol. 81-82: 173-183. Read More