ISQA 429

1
ISQA 429

• Inventory
• Warehouse Management
• Sustainability

2
Inventory Management

• Dont Control Inventories Control Processes
• Inventories are Symptoms of Processes

3
Why Do We Have Inventories?

• Cover Up For
• Customers Unreliable Forecasts
• Our Unreliable Forecasts, Bad Planning
• Inaccurate Shop Floor Scheduling
• Poor Inventory Control
• Poor Internal Quality
• Unreliable Supplier Deliveries, Quality
• Unreliable Transportation
• Excessive Supplier Lead Times
• Excessive Set-Up Times
• Poor Maintenance

4
Reasons to Keep Inventories

• Seasonal Demand Exceeds Capacity
• Hedges
• Supply
• Price
• In general, we should maintain inventories
• if they provide a competitive or strategic
  advantage,
  
• OR
• if inventories will provide necessary goods
  unavailable any other way.

5
Inventory Types

• Raw Materials and Components
• Work-in-Process
• Finished Goods
• Maintenance, Repair and Operating Supplies
• Squirrel Stock
• Excess, Surplus, Scrap

6
Inventory Carrying Costs
7
Inventory Carrying Costs

• Cost of Capital
• Lost Opportunity Cost
• Borrowing Costs
• Inventory Labor
• Wages
• Fringe Benefits
• Capital Investments
• Building
• Material Handling Equipment
• Storage Racks

8
Inventory Carrying Costs

• Variable Costs
• Heat and Light
• Taxes and Insurance
• Shrinkage and Obsolescence
• Tracking Costs
• Computer Time Data Entry

9
Economic Order Quantity
10
Inventory Transaction Costs
11
Classifications of Inventories

• Emergency Inventories
• Active Inventories
• Expensed Inventories

12
Safety Stock Calculations

• Safety Stock is a Function of Variability in
  Demand DURING LEAD TIME
  
• Stockouts Often Are Caused By INTERACTION Between
  Lead Times Longer Than Normal and Demand Greater
  Than Normal

13
Safety Stock Calculations

• Many Methods of Calculation
• Average Use During Lead Time Safety Stock
• Maximum Use During Lead Time - Average Use During
  Lead Time Safety Stock
  
• Mean Absolute Deviation
• Dangers of Letting The Computer Do It

14
Mean Absolute Deviation

• Step 1 Calculate Average Lead Time Usage
• Step 2 Compare Each Periods Usage to Average
• Step 3 Calculate Average Difference
• Step 4 Select Inventory Response Rate
• Step 5 Calculate Safety Stock (Average
  Difference x Multiplier from Step 4)
  

15
Usage Variability and Service Levels

• MAD Std Dev Svc Lvl
• 1.0 .8
  58
  
• 1.5 1.2
  77
  
• 2.0 1.6
  89
  
• 2.5 2.0
  95
  
• 3.0 2.4
  98
  
• 3.5 3.2
  99.5
  
• 1 MAD .8 Std Dev 1 Std Dev 1.25 MAD

16
Minimum and Maximum

• Min Reorder Point (ROP)
• Min Average Use During Lead Time Safety
  Stock
  
• Max EOQ Safety Stock

17
Consignment Inventories

• Definition
• Inventory Carrying Cost Sharing
• Advantages
• Investment
• Availability
• Potential Problems
• Ownership
• Flexibility
• Minimum Turns

18
Inventory Management Tools

• ABC Analysis
• Inventory Turnover Ratio

19
Inventory Management

• An Alternative View of ABC
• Criticality
• Lead Time
• Cycle Counting
• Risk Pooling
• Trading Premium Transportation for Inventory
• Hold Slow Movers at Only One or Two Central
  Locations

20
Total Cost of Ownership

• INV Cost (Avg Inv SS) x unit price x ICC
• ADMIN Cost Orders x PO Cost
• TC INV Cost ADMIN Cost
• As Inventory Sits, Its Value Declines, Its Costs
  Increase

21
Grocery Inventory

• If We Spend 500 Per Month On Groceries, and
• If We Bought Groceries Like We Buy Indirect
  Supplies
  
• 1 Turn 6,000 of Groceries On Hand
• 2 Turns 3,000
• 6 Turns 1,000

22
What Is Impact Of Increasing Turns By 1?
23
Inventory Technologies

• Bar Coding
• ASRS
• RF Technologies
• Voice Pick
• RFID Systems
• Computer Controlled Warehouse Activities
• Automated Reordering

24
Impact of Warehouse Numbers on Inventory Levels

• 1 Warehouse 100
• 2
  141
  
• 3
  173
  
• 4
  200
  
• 5
  224
  
• 10
  316
  
• Maintains a given service level

25
Warehouse Operating Costs

• Shipping 15
• Receiving 15
• Storage 20
• Order Picking 50

26
Warehouse Operating Costs

• Minimize Picking Costs Errors
• Issue In Standard Quantities
• (Minimizes Counting)
• Separate Similar Products
• Minimize Picker Travel
• Take Inventory to Picker
• Order Batching

27
Warehousing

• Functions of Warehouses
• Storage
• Consolidation
• Product Mixing
• Cross Dock Sorting
• Order Processing
• Postponement

28
Warehouse Issues

• Demand Level
• Demand Stability, Seasonality
• Need for Control
• Numbers, Locations
• Layout
• Stocking Plans
• Automation and Material Handling
• Security
• Standardization

29
Warehouse Types

• Public
• Contract / Third Party
• Private
• Bonded Warehouses
• Foreign Trade Zones

30
Principles of Warehouse Layout

• One Story Design
• Move Goods in Straight Line
• Efficient Material Handling Equip.
• Efficient Storage Plan
• Fast Movers Up Front
• Complementary Products Together
• Minimize Mispicks
• Minimize Aisle Space
• NEVER Dead End Aisles
• Use Full Cube of Building

31
Sustainability in LogisticsTransportation

• Fuel Cost Increases
• Alternative Fuels
• Ethanol
• Impacts of Ethanol Production
• Biodiesel
• Hybrids

32
Sustainability in LogisticsWarehouse Operations

• Electric Lift Trucks
• Solar Panels
• Green Building Methods