Warehouse Management

System

MODULE - 4
Warehousing:
 Warehouse – A commercial building for storage of
goods and material where goods and materials are kept
either for distribution, reworking for shipping,
packaging
 Warehousing – Storage of goods and materials in a
commercial building (Warehouse) for a certain period
of time
Why warehousing is required ?
 To smoothen and regulate supply and demand
 Continues production
 Avoid stock out and plant shutdown situations.
 Seasonal / Perishable products required
specified storage
 Smooth operations with Quality and timely
delivery or reach to customers.
 Competitiveness and to avoid price fluctuations.
A Warehouse Management System (WMS)
is a software application that controls and
manages a warehouse's day-to-day
operations, including inventory tracking,
receiving, storage, picking, packing, and
shipping.
What is Warehouse Process?

Receiving
Put away
Storage
Picking
Packing
Shipping
What Is Inventory Management?
 Inventory management refers to the process of ordering, storing,
using, and selling a company's inventory. This includes the
management of raw materials, components, and finished products,
as well as warehousing and processing of such items.
 Inventory management helps companies identify which and how
much stock to order at what time. It tracks inventory from purchase
to the sale of goods. The practice identifies and responds to trends to
ensure there's always enough stock to fulfill customer orders and
proper warning of a shortage.
 Once sold, inventory becomes revenue. Before it sells, inventory
(although reported as an asset on the balance sheet) ties up cash.
Therefore, too much stock costs money and reduces cash flow
Various cost associated with
inventory
 Thecost of carrying inventory is used to help
companies determine how much profit can be
made on current inventory. The cost is what a
business will incur over a certain period of time, to
hold and store its inventory. The carrying cost of
inventory is often described as a percentage of the
inventory value.
Four main components to carrying
cost of inventory
 Capital cost
 Storage cost.
 Inventory service cost.
 Inventory risk cost.
COST ASSOCIATED WITH INVENTORY
 Capital cost is the cost that a business expands on carrying
inventory. It is the largest component of the total costs of
carrying inventory.
 A company will express the capital cost as a percentage of the
value of the total inventory it is holding.
 For example, if a company says that the capital cost is 35 percent
of its total inventory costs, and the total inventory held is 6000,
then the capital cost is 2100
Storage Space Cost
 Thestorage space cost is a combination of the
warehouse rent or mortgage, lighting, heating, air
conditioning, plus the handling costs of moving the
materials in and out of the warehouse.
 Some of the costs are fixed, such as rent or
mortgage, but there are variable costs, such as the
handling of the materials that will vary with the
level of inventory.
Inventory Service Cost
 Thecost of carrying inventory will include inventory
service costs. These costs include insurance paid on the
inventory and taxes to local government.
 Theinsurance that a company pays is dependent on the
type of goods in the warehouse as well as the level of
inventory. The higher the level of inventory in the
warehouse, the higher the insurance premium will be.
 Many local authorities tax the level of inventory in the
warehouse, so higher levels of inventory will lead to
higher taxes paid and a higher inventory service cost.
Inventory Risk Cost
 Carrying inventory comes with a certain degree of
risk. This risk is a component of the cost of
carrying inventory.
 When a company stocks items in the warehouse,
there is always the risk that the items may fall in
real value during the period they are stored.
 Forexample, an item could become obsolete or
superseded by a new model or version.
Types of Inventory Risk
Shelf Life – There is a certain shelf life amount for
most products. For the company selling the goods,
this is an inventory risk. Items that are perishable
such as eggs and milk have less shelf life than
other product types. The companies that produce
goods have higher inventory risks.
Inventory Damage and Loss – Usually,
inventories used in normal processes of
business tend to get damaged. Inventory that
is damaged goes to waste as it cannot be
used. This increases business cost. To reduce
waste cost and to avoid damaged inventory,
inventory control policies are created by
companies. Effective use of inventory also
needs to be regulated by rules to prevent
further waste.
 Lifecycle – There is a product life cycle
 that each product goes through. There is a higher inventory
risk for products that are at the decline stage. Products
from firms such as this tend to tighten the manufacturing
policies and inventory control. They only produce enough
to meet the current demand sufficiently. A production
surplus of goods not sold in the marketplace becomes
obsolete and for the firm, this becomes a heavy burden.
 Theft – When it comes to inventory control, theft is
one of the biggest risks. This is particularly true
when there is higher value in inventory. If theft is
something that internal employees are involved in,
it is harder to be able to identify where the theft
happens since these employees are more familiar
with the system in its entirety.
Inventory control Technique
 EOQ
 Buffer stock
 Lead time reduction
 Reorder point
 Re-order level fixation.
 ABC analysis
 SDE/VED Analysis.
EOQ (Economic Order Quantity)
The purpose of this model is to answer two important
questions:
 When should an item be reordered (resulting in
procurement cost)? and
 What quantity should be ordered (resulting in
carrying or holding cost)? Thus the model can be
used to determine how much inventory needs to be
carried to meet demand.
LEAD TIME METHOD
Itis the time taken between the placing of
order and receipt of drugs to the department.
The longer the lead time, the larger is the
safety stock, resulting in excess of investment
in inventories. As far as possible efforts
should be made to decrease the lead time for
effective inventory control.
Safety stock(buffer stock)

 Minimum level of inventory to cover unforeseen

and uncalled for situation or Minimum quantity of
particular item that should be kept in store at all
times
 Protectagainst variation in demand and
procurement period
 Used in emergencies
Factors affecting stocks
 Uncertainty in demand
 Uncertainty in lead time
 Degree of insurance for an item.
 Nature of item and rate of consumption.
 Size of batch
 Availability of subsequent.
VED ANALYSIS [VITAL, ESSENTIAL,
DESIRABLE]
 VITAL DRUGS – Such drugs are categorised as vital
whose absence (no stock) cannot be tolerated even for a
single day. That means in their absence the work of
hospital or wards or patient care to come standstill.
 ESSENTIAL Drugs – These are the drugs without which
a hospital can function but may affect the quality of
service to some extent but not to a very serious extent.
 DESIRABLE Drugs – These are the drugs whose absence
will not affect the functioning of hospital or ward or
department or patient care.
VED ANALYSIS [VITAL, ESSENTIAL,
DESIRABLE]
 The motive of this system is to reduce investment
in inventories. The drugs which are fast moving,
i.e. which are in great demand should be stocked
more than drugs occasionally demanded and lastly
the drugs which are rarely demanded should be
stocked in minimum quantity.
 ADVANTAGES OF VED ANALYSIS
 Itis useful for monitoring and control of stores and
spares inventory by classifying them into three
categories.
 Determine the criticality of an item and its effect
on production and other services.
 Itis useful for controlling and maintain the stock of
various types.
 SDE ANALYSIS [Scarce, difficult, easy]
to obtain S'- scarce items which are difficult to
obtain . generally imported, which are in short supply
. managed by top level management.
 'D''difficult' items which are available
indigenously but are difficult items to procure.
 E' 'Easy' items easy to acquire readily available in
the local markets.
 E' 'Easy' items easy to acquire , readily available in
the local markets.
Reorder Point
 The Reorder Point (ROP) is the level of inventory which
triggers an action to replenish that particular inventory
stock.
 ROP = (Average Daily Usage × Lead Time) + Safety Stock
Eg: You use 50 coffee bags per week
Your supplier takes 5 days to deliver
You keep 20 bags as safety stock for unexpected busy
periods.
 Reorder point is a technique to determine when to
order, it does not address how much to order when
a order is made.
 Thedecision on how much stock to hold is
generally referred to as a order point problem.
The factors that determine the appropriate reorder
point.
 Delivery time stock: This is the inventory needed
during the lead time, which is the time between
placing an order and receiving it.
 Safety stock: This is the minimum level of
inventory kept to protect against shortages caused
by fluctuations in demand.
 Reorder Point (R) = Normal consumption
during lead-time + Safety Stock
Reorder Level Fixation
The process of determining the reorder point by considering
demand, lead time, safety stock, and risk factors.
 Decides what the reorder point should be, usually set
slightly higher than just lead time demand to avoid
uncertainty.
 Reorder Level=(Average usage×Lead time)+Safety stock.
 Average usage = 50 syringes/day.
 Lead time = 10 days.
 Safety stock kept = 100 syringes (for emergencies).
Types of inventory

 Cycle inventory
 Safety stock
 Decoupling stock
 Anticipation inventory- seasonal stock and speculation
stock.
 Pipeline inventory
 Dead stock inventory
COMPONENTS OF INVENTORY
DECISIONS
 Cycle Inventory
 Safety Inventory
 Seasonal Inventory
 Level of Product Availability
 Inventory-Related Metrics
 Overall Trade-Off: Responsiveness Versus
Efficiency
 Cycle inventory is the average amount of inventory used to
satisfy demand between receipts of supplier shipments.
 Companies produce or purchase in large lots to exploit
economies of scale in the production, transportation, or
purchasing process.
 With the increase in lot size, however, also comes an increase in
carrying costs.
 The cycle inventory decisions the retailer must make are how
much to order for replenishment and how often to place these
orders. Eg: Retailer's sales average around 10 truckloads of books a
 month.
 SafetyInventory is inventory held in case demand
exceeds expectation; it is held to counter
uncertainty.
 Forexample, a toy retailer such as Toys "R" Us
must calculate its safety inventory for the holiday
buying season. If it has too much safety inventory,
toys go unsold and may have to be discounted after
the holidays.
 Seasonal Inventory is when Companies using seasonal
inventory build up inventory in periods of low demand and
store it for periods of high demand when they will not
have the capacity to produce all that is demanded.
 Mangers must balance the trade offs by
 Carrying cost of storing inventory (warehouse, insurance,
spoilage, etc.).
 Flexibilitycost of adjusting production rates (hiring/firing,
overtime, extra shifts, etc.
Level of product availability is the fraction of
demand that is served on time from product
held in inventory.
The basic trade-off when determining the
level of product availability is between the
cost of inventory to increase product
availability and the loss from not serving
customers on time.
Inventory-Related Metrics
Average inventory
Products with more than a specified number
of days of inventory.
Average replenishment batch size
Average safety inventory
Seasonal inventory
Fill rate
Fraction of time out of stock
Overall Trade-Off: Responsiveness Versus
Efficiency.
 Increasinginventory generally makes the supply
chain more responsive to the customer.
 This choice, however, increases inventory holding
cost.
Inventory cost management

Ordering cost
Inventory carrying cost
Stock outs
Computing inventory cost
Business response to stockouts
• Cutting ad spending
• Temporarily increasing price
• Closing listings on sites like Amazon or eBay
• Ordering emergency stock for the next time
• Reducing lead time
• Accurately forecasting demand
• Maintaining optimum safety stocks
• Offering apologies, rainchecks, home delivery,
trade-up, or discount to induce consumers to not
leave a store in response to a stockout.
What Is Inventory
Replenishment?
 Inventory replenishment, also referred to as stock
replenishment, focuses on ensuring the company reorders
items from suppliers in time to meet customer demand
without accumulating excess inventory.
 inventory replenishment can also refer to the process of
moving inventory from reserve storage to primary
locations so that it can be used to fulfill orders.
Benefits of inventory
replenishment
Helps avoid stockouts.
Improves customer satisfaction.
Prevents overstocking.
Lowers shipping costs.
What is MRP?

 Material Requirements Planning is a management tool to ensure

that materials and components/parts are available at the right
time so that the finished products can be completed according to
master production schedules.
 According to American Production and Inventory Control Society
(APICS): “MRP constitutes a set of techniques that use bill of
materials (BOM), inventory data, and master production schedule
(MPS) to calculate the requirement of materials for making a
good line of balance (LOB).”
Inputs and outputs of MRP
Order matching process and
volume analysis.
 Order matching is an automated process where amatching
engine pairs buy and sell orders for a security at
compatible prices and times, using a price-time priority
system to determine execution priority.
 Volume analysis involves examining trading volumes to
confirm and predict price trends, with tools like positive
volume index and negative volume index used to assess
the significance of trading activity