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WAREHOUSE & INVENTORY MANAGEMENT, Why keeping it as inventory? -…
WAREHOUSE & INVENTORY MANAGEMENT
1. Types, Functions & Costs of
Inventory
B. Functions of inventories
Buffer uncertainty in the marketplace → Safety (buffer) stock
Decouple (break) the dependencies between stages in the supply chain.
Geographically separate the consumption of the finished goods from production
Store capacity for later use
C. Costs of inventories
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A. Types of inventories
Inventory: all materials and goods that are purchased, partially completed materials and component parts, and the finished goods produced.
Work-inprocess (WIP) (mặt bàn, khung thép, khung sắt, chân đỡ, ...)
Decouple processing stages
Break the dependencies between work centers
Finished goods (bàn, ghế, tủ, ...)
-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
Raw materials (gỗ, sứ, nhựa, sắt, ...
Reduce Cost: Buy in batch to take advantage of transportation economies, quantity discounts, order cost, etc.
Hedge risk: Future material price, shortage in supply, late delivery, quality problems, etc.
Maintenance, repair, and operating supplies (MRO) (ốc vít, búa, cưa, tua vít, ...)
Reduce Cost: Buy in batch to make take advantage of transportation economies, quantity discounts, order cost, etc.
Hedge risk: rising future material price, shortage in supply, late delivery, quality problems, etc.
3. Warehouse Management
B. Material Handling Equipment (MHE)
A. FIFO – FEFO – LIFO
FIFO / FEFO: - First in - First out/ First expired - First out
Suitable products:
Items with a 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:
Reduce cost: product won't staying long in the WH <=> reduce inventory cost
Reduce expired and obsolete inventory
Quality control: stock is rotated frequently <=> Customers are less likely to receive expired products.
Minimize inflation impact: As the cost of production is always on the rise, shipping out the older and less costly inventory can optimize the profit
Disadvantage:
Warehouse space: requires huge storage space for loading and unloading frequently.
Product tracking: Need a WMS to keep track of products as they move in and out quickly.
Monitoring difficulties: difficult to update the inventory constantly with thousands of SKUs in different locations, each with a particular expiration date.
Higher taxes: higher profits <=> higher taxes
LIFO: Last in – First out
Require WH:
- Same aisle for loading and unloading
Advantages:
Accounting benefit: reduce taxes, fewer write-downs, etc.
Reduce warehouse hassles: With LIFO, the new batch of stock is placed right on top of the old batch in the warehouse. The technique requires less tracking and space for warehousing given that stock rotation is not necessary
Suitable products:
- Homogeneous products that don’t expire. E.g: Coal, wine and Construction materials (bricks, sand, coal, stones, etc.).
Disadvantage:
Limitation in the types of products: only applies to certain product categories that don’t lose value over time
2. ABC Inventory Control System
A. Definition
Note: - There can be more than 03 categories /// The desired percentage is just for a general guideline
Classification criteria could be sales volume, current inventory, etc /// In short, be flexible
• ABC inventory control system is often combined with the 80/20 rule or Pareto analysis
B. The ABC Warehouse layout
B
Moderate
Medium
In-between
C
Lowest moving items
Farthest from dispatch area and MHE
Stocktake less frequently
Stockouts is allowed to save inventory space and carrying costs.
A
Very frequent in and out
Easy-to-access areas close to the dispatch area
Stored in storage systems with quick and direct access to the material handling equipment (MHE)
Stocktake frequently
Have higher safety stock
Why keeping it as inventory?