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WAREHOUSE & INVENTORY MANAGEMENT - Coggle Diagram
WAREHOUSE & INVENTORY MANAGEMENT
Types of inventories
Inventory: all materials and goods that are purchased, partially completed materials and component parts, and the finished goods produced.
Raw materials
DEF: Unprocessed purchased inputs or materials for manufacturing the finished goods
WHY
Reduce Cost: Buy in batch to take advantage of transportation economies, quantity discounts, order cost
Hedge risk: increase future material price, shortage in supply, late delivery, quality problems
WIP
DEF: Materials that are partially processed but not yet ready for sales
WHY
Decouple processing stages
Break the dependencies between work centers
Finished goods
DEF: Completed products
ready for shipment
WHY
Buffer against unexpected demand changes
Hedge against production process downtime
Ensure production economies when the setup cost is very
high
Stabilize production rates, especially for seasonal products
MRO
DEF: Materials and supplies used when producing the products but are not parts of the products
WHY
Reduce Cost: Buy in batch to make take advantage of transportation economies, quantity discounts, order cost
Hedge risk: rising future material price, shortage in supply late delivery, quality problems
Functions of inventories
Buffer uncertainty in the marketplace -> Safety
(buffer) stock
Break the dependencies between stages in the supply chain
Geographically separate the consumption of the finished goods from production
Store capacity for later use
Costs of inventories
Indirect costs: Costs not directly related to the production
Direct costs: Costs directly related to the production
Fixed costs: Costs which are independent of the output quantity
Variable costs: Cost change as the output quantity fluctuates
ABC Inventory Control System
Definition: 80/20 rule
The ABC Warehouse layout
A
Movement in the warehouse: Very frequent in and out
Location in a warehouse
Easy-to-access areas close to the dispatch area
Stored in storage systems with quick and direct access to the MHE
Company’s action
Stocktake frequently
Have higher safety stock
B
Movement in
the warehouse: Moderate
Location in a warehouse: Medium
Company’s action: In-between
C
Movement in the warehouse: Lowest moving items
Location in a warehouse: Farthest from dispatch area and MHE
Company’s action
Stocktake less frequently
Stockouts is allowed to save inventory space and carrying costs
Warehouse Management
FIFO / FEFO
Suitable products
specific expiration date, especially FMCG
Products that can easily become obsolete such as fashion and electronics
Required WH: Loading and unloading aisles must be different
Advantage
product won’t staying long in the WH -> reduce inventory
cost
Reduce expired and obsolete inventory
Quality control: stock is rotated frequently
Minimize inflation impact
Disadvantage
requires huge storage space for loading and unloading frequently
Need a WMS to keep track of products as they move in and out quickly
difficult to update the inventory constantly with thousands of SKUs in different locations, each with a particular expiration date
higher profits -> higher taxes
LIFO
Suitable products: Coal, wine and Construction materials (bricks, sand, coal, stones, etc.)
Required WH: Same aisle for loading and unloading
Advantage
reduce taxes, fewer write-downs
less tracking and space for warehousing
Disadvantage: Limitation in the types of products: only applies to certain product categories that don’t lose value over time