PHYSICAL INVENTORY CONTROL AND WAREHOUSE MANAGEMENT

PHYSICAL INVENTORY CONTROL AND WAREHOUSE MANAGEMENT

1. MATERIALSMANAGEMENT
Week 10: Physical Inventory Control
and WarehouseManagement

2. OUTLINE
➢WarehousingManagement
➢PhysicalControlandSecurity
➢InventoryRecordAccuracy
➢TechnologyApplications

3. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehousingManagement
ObjectivesofEfficientWarehouseOperations
⚫Providetimelycustomerservice
⚫Keeptrackofitemssotheycanbefound
readilyandcorrectly
⚫Minimizethetotalphysicaleffortandthus
the cost of moving goods into and out of
storage
⚫Providecommunicationlinkswithcustomers

4. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehousingManagement
⚫BenefitsofWarehouseManagement
⚫Provideaplacetostoreandprotectinventory
⚫Reducetransportationcosts
⚫Improvecustomerservicelevels
⚫The complexity of a warehouse operation will depend
onthenumberofSKUs(stock-keepingunits) handled
andthenumberofordersreceivedand filled.
⚫Mostactivityinawarehouseismaterialhandling.

5. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehousingManagement
⚫CostsofOperatingaWarehouse
⚫Capitalcosts
⚫costsofspaceandmaterialshandlingequipment
⚫Operatingcosts
⚫costoflabor
⚫themeasureoflaborproductivityisthenumberofunitsthat
anoperatorcanmoveinaday

6. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehousingManagement
⚫CostsofOperatingaWarehouse
⚫The costs of operating a warehouse will depend on:
materialhandlingequipmentused,stocklocationsystem
usedandthewarehouselayout.

7. Ch.10:PhysicalInventoryandWarehouseManagement
Warehouse Activities
7
⚫Receivegoods
⚫Identifythegoods
⚫Dispatchgoodstostorage
Holdgoods
⚫Pickgoods
⚫Marshalshipment
⚫Dispatchshipment
⚫Operateaninformationsystem

8. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
⚫Receivegoods
⚫accepts goods from outside transportation or
attachedfactoryandacceptsresponsibilityforthem
⚫checkthegoodsagainstanorderand thebilloflading
⚫checkthequantities
⚫checkfordamageand filloutdamagereportsif
necessary
⚫inspectgoodsifrequired

9. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
⚫Identifythegoods
itemsareidentifiedwiththeappropriatestock-keepingunit
(SKU) number (part number) and the quantity received
recorded
⚫Dispatchgoodstostorage
goodsaresortedandputaway
⚫Holdgoods
goodsarekeptinstorageandunderproperprotectionuntil
needed

10. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
⚫Pickgoods
itemsrequiredfromstockmustbeselectedfromstorageand
broughttoamarshallingarea
⚫Marshaltheshipment
goodsmakingupasingleorderarebroughttogetherand
checkedforomissionsorerrors;orderrecordsareupdated
⚫Dispatchtheshipment
ordersarepackaged,shippingdocumentsareprepared,and
goodsloadedonthevehicle

11. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
⚫Operateaninformationsystem
arecordmustbemaintainedforeachiteminstock
showingthequantityonhand,quantityreceived,
quantityissued,and locationinthewarehouse

12. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
Tomaximizeproductivityand minimizecost,warehouse
managementmustworkwiththefollowing:
⚫Maximizeuseofspace
spaceisthelargestcapitalcost
⚫Effectiveuseoflaborandequipment
laboristhelargestoperatingcost
material handlingequipmentisthesecondlargestcapital
cost

13. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
Factorsinfluencingeffectiveuseofwarehouses
⚫cubeutilizationandaccessibility
⚫stocklocation
⚫orderpickingandassembly

14. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
⚫Cubeutilization andaccessibility
⚫Goods are stored not just on the floor, but in the
cubicspaceofthewarehouse;warehousecapacity
dependsonhowhighgoodscanbestored
⚫Accessibilitymeansbeingabletogetatthegoods
wantedwithaminimumamountofwork

15. Exercise
1.AcompanywantstostoreanSKUconsistingof13,000cartonsonpallets
eachcontaining30cartons.
Howmanypalletpositionsareneededifthepalletsarestoredthree
high?
2.AsmallwarehousestoresfivedifferentSKUsinpalletloads.Ifpallets
arestackedthreehighandthereistobe100%accessibility,howmany
palletpositionsareneeded?Whatisthecubeutilization?
SKUA
SKUB
SKUC
SKUD
SKUE
4pallets
6pallets
14pallets
8pallets
5pallets
Total
15
37pallets

16. 1.
16
2.
Exercise

17. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
StockLocation
⚫Objectives:
⚫Toprovidetherequiredcustomerservice
⚫Tokeeptrackof whereitemsarestored
⚫Tominimizeefforttoreceive,putaway,andretrieveitems
⚫BasicStockLocatingSystems
⚫Groupfunctionallyrelateditemstogether
⚫Groupfast-movingitemstogether
⚫Groupphysicallysimilaritemstogether
⚫Locateworkingstockandreservestockseparately

18. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities(StockLocation)
FixedLocation
⚫AnSKUisassignedapermanentlocation,and
nootheritemsarestoredthere
⚫Fixed-locationsystemsusuallyhavepoorcube
utilization
⚫Usuallyusedinsmallwarehouses;throughput
issmall,andtherearefewSKUs

19. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities(StockLocation)
Floating(Random)Location
⚫Goodsarestoredwhereverthereisappropriatespace
⚫Advantageofthissystemisimprovedcubeutilization
⚫Itrequiresaccurateandup-to-dateinformation
⚫Warehousesusingfloating-locationsystemsare
usuallycomputer-based

20. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities(StockLocation)
Twoothersystemssometimesusedare:
⚫Point-of-usestorage
⚫Inventoryisstoredclosetowhereitwill beneeded
⚫MainlyusedinrepetitivemanufacturingandJITsystems
⚫Centralstorage
⚫Containsallinventoryinonecentrallocation

21. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities(StockLocation)
AdvantagesofPoint-of-useStorage
⚫Materialsarereadilyaccessibletousers
⚫Materialhandlingisreducedoreliminated
⚫Centralstoragecostsarereduced
⚫Materialisaccessibleallthetime

22. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities(StockLocation)
AdvantagesofCentral Storage
⚫Easeofcontrol
⚫Inventoryrecordaccuracyiseasiertomaintain
⚫Specializedstoragecanbeused
⚫Reducedsafetystock,sinceusersdonotneedtocarry
theirownsafetystock

23. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
OrderPickingandAssembly
⚫Whenanorderisreceived,itemsmustbeobtained
from the warehouse, grouped, and prepared for
shipment,systemsused:
⚫Areasystem
⚫Zonesystem
⚫Multiordersystem

24. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
OrderPickingandAssembly
⚫Areasystem
The order picker circulates throughout the warehouse
selectingtheitemsonanorder.Theorderiscompleteand
readytoshipwhentheorderpickerisfinished
⚫Zonesystem
Thewarehouseisdivided intozones,andeachpickerworks
onlyinanassignedzone.Theorderisdivided byzone,and
theitemsfromeachzonearesenttothemarshalingarea.

25. Ch.10:PhysicalInventoryandWarehouseManagement
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WarehouseActivities
OrderPickingandAssembly(continued)
⚫Multiordersystem
Thissystemisthesameasthezonesystem,exceptthateach
pickercollectsitemsforanumberof ordersatthesame
time.

26. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing:PhysicalControlandSecurity
PhysicalControlandSecurity-Elements
⚫Goodpartnumberingsystem
⚫Simple,well-documentedtransactionsystem
⚫Identifytheitem
⚫Verifythequantity
⚫Recordthetransaction
⚫Physicallyexecutethetransaction

27. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing:PhysicalControlandSecurity
PhysicalControlandSecurity-Elements
⚫Limitedaccess
Inventorymustbekeptinasafe,secure(locked)place
withlimitedgeneralaccess.
⚫Well-trainedworkforce

28. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing: InventoryRecordAccuracy
Accurateinventoryrecordsenablefirmsto:
⚫Operateaneffectivematerialsmanagementsystem
⚫Maintainsatisfactorycustomerservice
⚫Operateeffectivelyandefficiently
⚫Analyzeinventory

29. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing: InventoryRecordAccuracy
Threepiecesofinformationmustbeaccurate:
⚫Partdescription(partnumber)
⚫Quantity
⚫Location

30. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing: InventoryRecordAccuracy
⚫Inventoryisatangibleassetthatiseasyto
losetrackofunlessproperlycontrolled
⚫Inaccurateinventoryrecordswillresultin:
-Lostsales
-Shortagesanddisruptedschedules
-Excessinventory(ofthewrongthings)
-IneffectiveMRP/ MRPII /ERP

31. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing: InventoryRecordAccuracy
Inaccurateinventoryrecordswillresultin:
⚫Lowproductivity
⚫Poordeliveryperformance
⚫Excessiveexpediting,sincepeoplewillalwaysbe
reactingtoabadsituationratherthanplanning
forthefuture

32. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing: InventoryRecordAccuracy
CausesofInventoryRecordErrors
⚫Unauthorizedwithdrawalofmaterial
⚫Unsecuredstockroom
⚫Poorlytrainedpersonnel
⚫Inaccuratetransactionrecording
⚫Poortransactionrecordingsystems
⚫Lackofauditcapability

33. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing: InventoryRecordAccuracy
MeasuringInventoryRecordAccuracy
⚫Itisnotpracticaltoexpect100%accuracy.
⚫Tolerance
⚫Tojudgeinventoryaccuracy,atolerancelevelforeachpart
mustbespecified
⚫Toleranceistheamountofpermissiblevariationbetweenan
inventoryrecordandaphysicalcount.
⚫Tolerancesaresetonindividualitemsbasedonvalue,critical
nature, availability, lead time, ability to stop prod., safety
problems,orthedifficultyofmeasurement.

34. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing:AuditingInventoryRecords
⚫Twobasicmethodsofauditinginventory:
-Periodic(usuallyannual)countsofallitems
-Cyclic(usuallydaily)countsof specifieditems
⚫Most important is to audit the system to
find causes of record inaccuracy and
eliminatethem.Cyclecountingdoesthis;
periodicauditstendnotto.

35. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing:AuditingInventoryRecords
⚫Factorsingoodpreparationforaphysical
inventoryare:
-Housekeeping
-Identification
-Training

36. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing:AuditingInventoryRecords
Aphysicalinventoryconsistsoffoursteps:
⚫Countitemsandrecordthecountonaticketleft
onthem
⚫Verifythiscountbyrecountingorbysampling
⚫Whentheverificationisfinished,collectthe
ticketsandlisttheitemsineachdepartment
⚫Reconciletheinventoryrecordsfordifferences
betweenthephysicalcountand inventorydollars

37. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing:AuditingInventoryRecords
Severalproblemswithannualphysicalinventory:
⚫Usuallythefactory/facilityhastobeshutdown,
thuslosingproductionorbusiness
⚫Laborandpaperworkareexpensive
⚫Thejobisoftendonehurriedlyandpoorlysince
thereismuchpressuretogetitdone
⚫Manytimes,moreerrorsareintroducedintothe
recordsthanareeliminated

38. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing:AuditingInventoryRecords
CycleCounting
⚫Asystemof countinginventorycontinuallythroughout
theyear
⚫Advantagesofcyclecounting:
⚫Timelydetectionandcorrectionofproblems
⚫Completeorpartialreductionoflostproduction
⚫Useofpersonneltrainedanddedicatedtocyclecounting
⚫Countfrequency
⚫Thenumberoftimesanitemiscountedinayear

39. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing:AuditingInventoryRecords
CountFrequency
⚫Thecountfrequencyshould increaseasthevalueof
theitemand numberoftransactions(chanceof
error) increase.Forexample,youcanbasethe
frequencyofcountonannualdollarvalueusage
⚫Methodsused:
⚫ABCMethod
⚫ZoneMethod
⚫LocationAuditSystem

40. Ch.10:PhysicalInventoryandWarehouseManagement
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Warehousing:AuditingInventoryRecords
⚫Cyclecountscanbescheduledatregular
intervalsorspecialtimes
⚫WhentoCount
-Whenanorderisplaced
-Whenanorderisreceived
-Whentheinventoryrecordreacheszero
-Whenanerroroccurs

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