Workplace Assignment 1: Understanding the supply chain

1.1.1) Suppliers: Raw materials and components are sourced from suppliers.
• Production: Raw materials and components are transformed into finished products
through manufacturing or assembly processes.
• Distribution Centres: Finished products are stored in distribution centres or warehouses.
• Transportation: Products are transported from distribution centres to retailers or directly
to customers.
• Retailers: Products are sold to end customers through various retail channels.
• Customers: End customers purchase and use the products.

1.1.2) To generate a stock report showing the stock flow over a period of time (e.g., a month), we'll
need to gather data on stock levels at regular intervals, such as daily or weekly. Then, we'll
use this data to indicate the level of stock at specific points in time and analyse for over and
under stocks.

Here's a general outline of how the report can be structured:

Stock Report for [Month/Week]

Stock Flow Over Time:

• 01/02/2024: Initial stock level
• 05/02/2024: Stock received - Stock sold = Current stock level
• 06/02/2024: Stock received - Stock sold = Current stock level
• ...
• Date 08/02/2024: Stock received - Stock sold = Current stock level
Stock Levels at Specific Points in Time:
• Beginning of Period: Initial stock level
• End of Period: Current stock level
Analysis:
• Overstocks: Instances where the current stock level exceeds a predetermined threshold or
forecasted demand. This could lead to storage issues, obsolescence, or increased holding
costs.
• Understocks: Instances where the current stock level falls below the minimum required for
fulfilling customer orders or maintaining production. This could lead to stockouts,
backorders, and potential loss of sales.
Recommendations:

• Adjust ordering quantities based on demand forecasts to prevent overstocks.

• Implement inventory management techniques such as just-in-time (JIT) to reduce holding
costs and minimize the risk of overstocks.
• Enhance supply chain visibility and communication to mitigate understock situations and
ensure timely replenishment.
By analysing the stock flow over time and identifying instances of over and under stocks, the
organization can optimize inventory management practices to improve efficiency and
profitability.
1.1.3) Let's consider an item of stock, such as a computer component, sourced from a
supplier, that has experienced a price increase. Here's how this price change affects the
finances of the Distribution Centre (DC):

Cost of Goods Sold (COGS):

• The price increase directly impacts the cost of acquiring the item from the supplier. As a
result, the DC incurs higher costs for each unit of the item purchased.
• This increase in COGS reduces the gross profit margin on sales of the item unless the DC
passes on the price increase to customers through higher selling prices.

Inventory Valuation:

• As the price of the item increases, the value of existing inventory also rises. This could lead
to an increase in the overall valuation of the DC's inventory.
• However, if the DC uses the first-in-first-out (FIFO) method for inventory valuation, newer
purchases at the higher price would be valued higher, leading to a faster depletion of lower-
cost inventory and potentially higher COGS.

Profitability:

• If the DC absorbs the price increase without adjusting selling prices, it may experience a
decrease in profitability on sales of the item, as the margin between the selling price and the
higher COGS narrows.
• Alternatively, if the DC adjusts selling prices to pass on the price increase to customers, it
may risk losing sales volume if customers are sensitive to price changes.

Cash Flow:

• If the DC maintains the same level of sales despite the price increase, it may experience
higher cash outflows due to increased spending on inventory.
• This could strain cash flow unless the DC can pass on the increased costs to customers in a
timely manner or negotiate better payment terms with suppliers.
In summary, a price increase from a supplier directly impacts the DC's finances by increasing
COGS, affecting inventory valuation, potentially reducing profitability, and impacting cash
flow. Effective management of pricing strategies, inventory levels, and supplier relationships
is crucial for mitigating the financial impact of price changes on the DC.

1.1.4)

1.1.5) Purchase Order:

• Purpose: A purchase order is a document issued by a buyer to a seller, indicating the types,
quantities, and agreed prices for products or services that the buyer wishes to purchase.
• Importance in the Supply Chain: The purchase order serves as a legally binding contract
between the buyer and the seller, outlining the details of the transaction. It helps ensure
that the buyer receives the correct items in the agreed quantities and prices, facilitating
smooth procurement and inventory management processes.
Example:

1.2) Understanding the distribution centre:

1.2.1) Floor plan of your DC

1.2.2) One document commonly used in distribution centres is the Picking Slip.

Purpose: A Picking Slip is a document that outlines the details of items to be picked from
inventory to fulfil customer orders.

1.2.3) (see doc)

Receiving Department:
• Stock initially enters the DC through the receiving department.
• Incoming shipments from suppliers are checked against purchase orders and waybills.
• Stock is inspected for damage and discrepancies are noted.
• Received stock is then logged into inventory and stored temporarily in designated
receiving areas.

Storage Department:
• Stock from the receiving department is transferred to storage areas.
• Inventory is organized and stored based on factors like SKU (Stock Keeping Unit), size,
weight, and turnover rate.
• Stock is labelled and shelved in a manner that facilitates easy retrieval for order fulfilment.

Order Picking Department:

• When customer orders are received, picking slips are generated.
• Warehouse staff retrieve items from storage locations based on the picking slips.
• Picked items are assembled into order batches, ready for packaging and shipping.
• Packing and Shipping Department:
• Picked items are brought to the packing and shipping department.
• Items are packed securely in appropriate packaging materials to prevent damage during
transit.
• Shipping labels and documentation, such as invoices and waybills, are affixed to packages.
• Packages are sorted based on shipping method and carrier.

Outbound Shipping:
• Completed orders are loaded onto outbound trucks or shipping containers.
• Shipping schedules are coordinated to ensure timely delivery to customers.
• Shipping manifests are generated and reconciled with the packed orders.

Returns and Inventory Control Department:

• Customer returns are received and processed.
• Returned items are inspected for damage and categorized for restocking, refurbishment,
or disposal.
• Inventory counts are conducted regularly to reconcile physical stock levels with recorded
inventory.
• Stock rotation and replenishment strategies are implemented to optimize inventory levels
and minimize stockouts.

This flow demonstrates how stock moves through each department within a Distribution
Center, from receiving and storage to order fulfillment, shipping, and inventory control. Each
department plays a critical role in ensuring the smooth flow of stock through the supply
chain, ultimately leading to customer satisfaction and efficient operations.

1.2.4) (see doc)

1.3 Stock Management

1.3.1) Shrinkage and losses within a distribution centre can be managed through a
combination of proactive measures and effective procedures. Here are some strategies
typically employed:
Inventory Management Systems: Implementing robust inventory management systems that
track stock movements from receiving to shipping can help identify discrepancies and
potential areas of shrinkage.

Security Measures: Enhancing security measures such as surveillance cameras, access

controls, and security personnel can deter theft and unauthorized access to inventory.

Employee Training and Awareness: Providing comprehensive training to employees on

inventory handling procedures, security protocols, and the importance of accuracy can help
minimize errors and mitigate the risk of internal shrinkage.

Audits and Reconciliations: Conducting regular audits and reconciliations of inventory levels
against records can help identify discrepancies and potential causes of shrinkage. This
includes cycle counting, spot checks, and annual physical inventories.

Supplier and Carrier Oversight: Establishing clear guidelines and procedures for receiving
shipments, verifying quantities, and inspecting goods upon receipt can help prevent losses
due to supplier errors or transportation issues.
Damage Control: Implementing measures to prevent damage during handling and storage,
such as proper packaging, shelving systems, and handling equipment, can reduce losses
caused by product damage.

Investigation and Resolution: Investigating incidents of shrinkage promptly and thoroughly,

and taking appropriate corrective actions, such as disciplinary measures, process
improvements, or changes in security protocols, can help prevent recurrence and mitigate
losses.

Data Analysis and Trend Monitoring: Analysing inventory data and monitoring trends in
shrinkage over time can help identify patterns, root causes, and areas for improvement,
enabling proactive measures to be implemented.
By employing these strategies and maintaining vigilance throughout the supply chain,
distribution centres can effectively manage shrinkage and losses, thereby safeguarding their
assets and maintaining operational efficiency.

1.3.2)

To effectively manage stock, various pieces of information or data need to be completed or

recorded throughout the stock management system, from the point where an item is
ordered to the point where it is stored. Here's a breakdown of the relevant data required at
each stage:
Ordering Stage:
• Purchase Order: Details of the items being ordered, including product name, description,
quantity, unit price, total price, and supplier information.
• Delivery Dates: Expected delivery dates for each item ordered, providing visibility into
when stock is anticipated to arrive.

Receiving Stage:
• Receipt Confirmation: Confirmation that the items ordered have been received, including
the actual quantities received, any discrepancies or damages, and the condition of the
received items.
• Supplier Information: Information about the supplier, such as name, contact details, and
any relevant agreements or contracts.

Storage Stage:
• Inventory Location: Location within the distribution centre where the received items are
stored, including aisle, shelf, bin, or rack numbers.
• Inventory Levels: Current stock levels for each item in storage, including both quantity on
hand and available for sale.

Order Fulfilment Stage:

• Picking Slip: Details of items to be picked for customer orders, including product name,
quantity, and location within the warehouse.
• Order Status: Status of each order, indicating whether it has been picked, packed, and
prepared for shipment.

Shipping Stage:
•Shipping Information: Details of outgoing shipments, including customer name, shipping
address, carrier information, and tracking numbers.
• Delivery Confirmation: Confirmation that the items have been shipped, including the date
of shipment and any relevant shipping documentation.

Generating reports that track stock movement through the distribution centre involves
compiling and analysing data collected at each stage. These reports may include:
• Receipts Report: Summarizes items received from suppliers, including quantities received,
discrepancies, and supplier performance metrics.

• Inventory Status Report: Provides an overview of current stock levels for each item in
storage, including quantities on hand, available for sale, and any potential stockouts.
• Order Fulfilment Report: Tracks the progress of customer orders through the fulfilment
process, from picking to packing to shipping, and identifies any bottlenecks or delays.

• Shipping and Delivery Report: Summarizes outgoing shipments, including customer orders
fulfilled, shipping methods used, and delivery status updates.
By capturing and analysing this data, distribution centres can make informed decisions about
inventory management, identify areas for improvement, and ensure efficient operations
throughout the stock management system.

Example of inventory status report:

1.3.3) A stock management system can provide a wealth of data and information that is
valuable for inventory control, forecasting, decision-making, and overall optimization of
warehouse operations. Here are some examples of the data that can be retrieved from a
Stock management system:
• Inventory Levels: Real-time or periodic updates on the quantity of each item in stock,
including both on-hand inventory and available inventory for sale.
• Stock Movement: Historical data on the movement of stock in and out of the warehouse,
including receipts from suppliers, sales to customers, transfers between locations, and
returns.
• Stock Turnover: Calculation of inventory turnover ratios to assess the rate at which stock is
being sold and replaced, providing insights into inventory efficiency and demand patterns.
• Stock Aging: Analysis of the age of inventory, identifying items that have been in stock for
an extended period and may be at risk of obsolescence or spoilage.
• Order Fulfilment Performance: Metrics on order accuracy, picking and packing times, and
fulfilment rates to evaluate the efficiency and effectiveness of order processing workflows.