Warehouse Operations and Inventory Management

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Companies that make the best use of the basic principles of planning and managing warehouse operations and inventory management have a competitive advantage. Organizations that lack warehouse strategic planning and inventory operational excellence lose profits, market share, cost advantages, and market leadership.

Traditional Supply Chain and Logistics channels are indeed changing. As organizations move from mass production and mass distribution to mass customization, creative approaches are needed in the management of warehousing and inventory. The challenge is always present, because different customers may demand different levels of service. Demand often cannot be forecasted, especially if one must deliver customized products or services exactly where the customer needs them.

Businesses today must understand that they are competing on the basis of time more than on any other factor. The rigors of supply chain management require that you take action to meet your customers’ demand for faster, more frequent, and more reliable deliveries. Your suppliers need to meet increasingly precise inbound schedules. Tomorrow’s customers are more likely to be in another country or continent than they are likely to be from across town, in another state, or in another province.

With a proven inventory management system and an A-B-C Analysis, you can transform your inventory into a proactive force that lowers your inventory investment, reduces carrying costs, boosts confidence in physical supply and distribution service levels, and increases customer and user satisfaction. From a storage and distribution perspective, you, as overseer of the supply management process, should also know how the warehousing layout design criteria and the space and storage schemes affect your material flow, service levels, computerization, and technology options.

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  • Warehouses are always different from each other, even within the same company!
    This is due to the diversity of warehouse locations, Inventory Racks, Fork Lift Trucks and current ways of working in the warehouse, and of course, each Industry works differently
  • Warehouse Operations and Inventory Management

    1. 1. Warehouse Operations and Inventory Management: A Supply Management Interface © 2005 CATTAN Services Group, Inc. A Joint NAPM/APICS Presentation 12 January 2005 to NAPM- Tulsa by Thomas L. Tanel, President and CEO CATTAN Services Group, Inc. College Station, TX cattan@cattan.com 979 260-7200
    2. 2. Process Owner Considerations • • • • • Receiving and Dock Operations Order Picking and Travel Time Cycle Counting Productivity and Warehousing Keys to Process System Reengineering
    3. 3. Inside Dock Space Requirements DOCK DOCK DOCK DOCK LEVELER LEVELER LEVELER LEVELER DOCK MANEUVERING AREA--15-FT CLEAR AISLE to UNLOAD/LOAD Buffer & Staging Area Buffer & Staging Area
    4. 4. What Consumes A Picker’s Time
    5. 5. Cycle Count Reports ITEM NUMBER QUANTITY LOCATION ON HAND CYCLE COUNT DOLLARS CLASS VARIANCE UNIT COST ON HAND VARIANCE 1905 C-6 50 40 -10 50 2,500 -500 B 9232 M-10 100 110 +10 100 10,000 +1,000 A 488 A-4 500 450 -50 10 5,000 -500 B 4029 F-9 200 195 -5 2 400 -10 C What should be done as a result of this cycle count?
    6. 6. Rate Yourself on Productivity 1. Do I understand the primary warehouse cost centers and their relationship to throughput, transaction volume, and order frequency? 2. Do the warehouse employees fully understand the company’s goals and objectives? 3. Are other allied functional areas coordinated with the warehouse on a periodic basis, and are warehouse standards of performance understood?
    7. 7. Rate Yourself on Productivity (continued) 4. Can we measure the efficiency and effectiveness of my warehouse’s work? 5. Are all warehouse employees capable of performing tasks assigned without constraint or limitation by other business functions? 6. Does warehouse management make effective use of warehouse assets (labor, equipment, space, and time) to get the job done?
    8. 8. Rate Yourself on Productivity (continued) 7. Do I encourage innovation and teamwork? 8. Do I have a plan to periodically evaluate my warehouse’s productivity and continually seek improvement? 9. Are our people well-qualified to do their assigned jobs? 10. Is material handling equipment distributed for maximum utilization?
    9. 9. Keys to Process System Reengineering • • • • Change is managed like day-to-day operations Senior executive champions the program Focus on real productivity and total costs Use the “Little Plus” Method What about the adage, “If it ain’t broke, don’t fix it”? It is not as though you are safe where you are. Even in biology, species which do not adapt risk extinction. Though it may not be “broke” now, the last person trying to fix it is in deep trouble. …But then again, the first person adapting to change is taking risks, too!
    10. 10. The Warehouse’s Ultimate Objective The ultimate objective of the warehouse is to hold the minimum operational inventory that contributes the most profits or satisfies needs —as long as that level is consistent with your customer service or internal user requirements and ordering and planning philosophy.
    11. 11. Optimize Inventory Performance • Fine tune forecasting to reflect changes in information to: – Alter ordering and delivery frequency – Smooth out flow of materials and information • Use an A-B-C Inventory Stratification Analysis to: – Look at demand patterns – Determine stocking policy – Set customer service levels
    12. 12. Forecasting versus Prediction • Forecasting estimates future events by casting forward past data: • Past data is combined in a system to estimate the future • Prediction estimates future events based on subjective material • These criteria need not be combined systematically • Forecasting is a judicious combination of: • Statistical analysis of historical data • Marketing/Service plans and strategies • Analysis of market competition • Current market or internal customer needs • Selected economic and industry trends Remember to forecast in units, not dollars. We don’t ship or issue dollars, we ship or issue units (pieces, weight, pallets, gallons etc)
    13. 13. Demand Chain—Pull Vs Push PHYSICA L TO BOOK REPLENISHMENT S U P P L Y Forecasted Demand I N V E N T O R Y Actual Demand PULL VS PUSH DEMAND
    14. 14. Inventory: The $upply Management Dilemma CO$T Tradeoffs Purchasing Inv Control & Supply & Operations Inventory Versus Procurement Inbound Freight Versus Procurement Inventory Purchasing & Supply Procurement Versus Quantity Traffic & Distribution Inventory Versus Operations Storage Space Versus Inventory Procurement Versus Inbound Frt. Inventory Versus Storage Space Shipping Versus Customer Svc Inv Control Procurement Versus & Operations Traffic & Distribution
    15. 15. Flow Supplier Purchased Parts & Material Work in Process Factory Finished Goods Warehouse Warehouse Warehouse Customer Demand Customer Demand Customer Demand
    16. 16. ABC Classification and Pareto’s Law-Volume versus Number of Items 100 80 A Volume (Percent) B C 15 5 0 20 50 Number of Items (Percent) 100
    17. 17. Applied Pareto’s Law--ABCD % of Items % of Activity % of Inventory Volume Class Cum Cum A 20 20 80 50 50 B 50 30 15 83 33 C 80 30 4 95 12 D 100 30 1 100 5
    18. 18. Microsoft Business Solutions— ABC Layout by Location Source: Microsoft Business Solutions—Winning Strategies for Distribution
    19. 19. Warehouse Layout and Inventory Profile
    20. 20. Satisfaction Guaranteed — What Is the Cost? • It is 5 times more expensive to gain a new customer than it is to satisfy an existing one. • 7 out of 10 customers who switch from one supplier to a competitor cite poor service as the reason. • A 1% increase in customer service can increase sales by the same amount. • Dissatisfied customers tell twice as many people about poor service than satisfied customers do about good service. Source: Customer Care Institute
    21. 21. Inventory Stocking Types CYCLE STOCK SAFETY STOCK ALLOCATED STOCK RISK/INSURANCE STOCK IMPAIRED STOCK “CLOAKED” STOCK
    22. 22. Inventory Cycle Time
    23. 23. Cost of Carrying Inventory— Order Quantity Least Cost Example Order Quantity Average Lot Size of Inventory Average Inventory $ Investment Carrying Costs in $ Number of Orders per Year Order Cost in $ Total $ Cost 1000 500 80 20 10 180 200 2000 1000 160 40 5 90 130 3000 1500 240 60 3.3 60 120 5000 2500 400 100 2 36 136 Let us assume an annual demand of 10,000 units with four order quantity options. Each unit costs $.16/unit with an order placement processing cost of $18 per order and an inventory carrying cost of 25%. What Order Quantity is Least Cost?
    24. 24. Service Level-Safety Stock Cost Index Cost of Safety Stock 400 300 200 100 85 90 95 Relationship between Service Level and Cost of Safety Stock 100 Customer Service Level
    25. 25. Service Level and MAD Service Level % “K” Factor Needed 50 — 84 1 93 1.5 97 2 98 2.5 99.9 3 99.999 4
    26. 26. Service Level and Costs-a 24% Inv Carrying Cost Assumption Service Level Stock out Frequency % Extra Inventory Investment % 50 50 — 84 16 14 93 7 21 97 3 28 99.9 0.1 43 99.999 0.001 57
    27. 27. Service Level Impact on Safety Stock and Inventory Carrying Costs This assumes a value of $1.00/unit and a 24% Inventory Carrying Cost
    28. 28. Optimize Inventory Performance • Establish inventory target performance levels • Delay inventory commitments as long as possible to: – Commit in stages (Available-to-Promise postponement) – Result in more accurate forecasting – Lower levels of safety stock • Optimize inventory performance rather than minimize inventory
    29. 29. Optiant’s Supply Chain Design— View of Inventory Impact
    30. 30. Inventory Bottom Line—Improvement of ROA Potential Reduction in Inventory Levels Inventory as a % of Total Investment 10% 20% 30% 40% 50% 10% 3% 5% 8% 11% 14% 20% 5% 11% 17% 23% 29% 30% 8% 17% 26% 36% 47% 40% 11% 23% 36% 51% 67% 50% 14% 29% 47% 67% 89% 60% 17% 36% 59% 84% 114%
    31. 31. Warehouse Mechanization and Automation • Tendency to automate whatever used to be manual or simple • Involve your people in redesign of: – Storage equipment layouts – Material flow paths • Demands fundamental changes in behavior • People make them succeed or fail
    32. 32. Warehouse Layout Design Data Product data: •activity level •requested quantities •product properties •supplier types Order data: •number of line items •number of items •cubic volume •shipping priorities •product correlation Managerial requirements / company strategy • Definition of major functional areas / departments • Definition of departmental subsystems • Storage and material handling modes • Operational policies • storage policies • replenishment policies • order picking policies • batching • sorting • zoning • routing • receiving & shipping policies
    33. 33. Work Simplification—6 Basic Questions
    34. 34. Block Layout and Conceptual Flow
    35. 35. Block Layout— U-Shape Material Flow Replenishment Case Picking Reserve Storage and Pallet Picking Replenishment Broken Case Picking Accumulation, Sortation & Packing Direct putaway to reserve Direct putaway to primary Receiving Shipping Cross-docking
    36. 36. Block Layout--Straight Line Material Flow SHIPPING SHIPMENT STAGING SORTING AND ASSEMBLY AREA TEMPORARY HOLDING AREA RECEIVING CHECK-IN RECEIVING
    37. 37. Warehouse Layout—L-Shape Flow Configuration RECEIVING & SORTATION CASE Packing Hanging Merchandise Active Storage C O N V E Y O R CONVEYOR S H BOXED I MERCHANDISE P FLAT MERCHANDISE P ACTIVE I STORAGE ACTIVE STORAGE N G RECEIVING & STAGING
    38. 38. Space and Storage Schemes Space requirements are directly related to: • Volume of material to be stored • Use of space characteristics – Honeycombing allowance – Aisle allowance • Cube and thinking “vertical”
    39. 39. Bulk Storage from Floor Steel Structural Shapes—Floor Storage Steel Wire—Floor Storage
    40. 40. Warehousing Equipment Diversity Standard Racking Double Deep Narrow Aisle Mobile Racking Drive in Rack Live / Flow Source: ATLET
    41. 41. AS/RS Cutout View
    42. 42. Storage and Equipment Correlation Space Type Picking Unit Size Material Handling Option 1 Material Handling Option 2 Material Handling Option 3 Bulk Storage Low Bay Pallet Standard Fork Trucks Clamp Truck Pallet Jack Selective Pallet Rack Low Bay Pallet All Fork Trucks Walkie-Stacker AGV Bulk Storage from Floor Low Bay Case Pallet Jack Most Fork Trucks Pick to Conveyor Selective Pallet RackSystem High Bay Case Order Picker Trucks All Fork Trucks Mezzanine Pick-to-Belt Double Deep Rack High Bay Pallet Reach Truck Drive-in/Drive Thru Rack High Bay Pallet Narrow Pallet Truck Pallet Flow Rack High Bay Case Pick Module to Conveyor Case Flow Rack Low Bay Case Manual to Conveyor Pushback Rack Standard Fork, Wide Slave Pallets Floor Level Picks to Pallet Only Robotic Extractor AS/RS High Bay Pallet AS/RS Shuttle N/A Storage Equipment/Methodology N/A N/A Most Standard Fork Trucks Auto Release to Conveyor N/A
    43. 43. Warehouse Layout-Combo Storage Methods
    44. 44. Honeycombing Allowance and Warehouse Location
    45. 45. Stock Location Methodology Comparison INVENTORY ITEM # LOCATION COMMODITY LOCATION RANDOM LOCATION COMBINATION LOCATION POOR POOR FAIR EXCELLENT EXCELLENT EXCELLENT GOOD EXCELLENT GOOD FAIR CUSTOMER SERVICE FAIR FAIR GOOD GOOD GOOD FLEXIBILITY FAIR POOR FAIR EXCELLENT EXCELLENT EXPANSION FAIR POOR FAIR EXCELLENT EXCELLENT FIXED LOCATION SPACE UTILIZATION TRAINING TIME
    46. 46. Common Storage Utilization Allowances TYPE OF STORAGE DEPTH HEIGHT NORMAL STORAGE UTILIZATION ALLOWANCE FLOOR OR DRIVE-IN RACKS More than 3 More than 3 30—40% 1.3—1.4 FLOOR OR DRIVE-IN RACKS Up to 3 Up to 3 25—30% 1.25—1.3 DOUBLE DEEP RACKS 2 Any 20—25% 1.2—1.25 SELECTIVE RACK 1 Any 10—15% 1.1—1.15 Source: Warehousing Education and Research Council SLOTS TO BE PROVIDED PE PALLET STORED
    47. 47. Warehouse Configuration--Double Deep Rack Storage Module and Aisle Allowance
    48. 48. Warehouse Layout-3D “Cube”—Thinking Vertical Multiple Storage Methods
    49. 49. Real Time Information • Use automatic data collection (ADC) techniques • Insure flow of information is both: – Seamless and at the source – Parallel to the flow of material • Seek opportunities to utilize EDI, E-Com, RF, and ASNs • Must support warehouse floor process—not dictate it • Provide flexibility to meet change in marketplace and customer requirements
    50. 50. Information and Material Flow
    51. 51. Process Mapping
    52. 52. Process Flowchart– Order Fill Example
    53. 53. WMS Integration The WMS must integrate with other warehousing components, namely: • • • • • • Radio Frequency Systems Bar Code Scanners and Printers ADC, RFID & Voice Recognition Technologies Data Exchange with ERP Systems Database Supply Chain Event-Driven or Time-Driven Synchronization Rules for Application Programs
    54. 54. Cadence Warehouse Centric Fulfillment— Example from Cadre Technologies
    55. 55. Available-to-Promise Functionality • WMS ability to drill down for detailed information on specific orders • WMS ability to facilitate an answer to the question, “Where is the product?” • WMS ability to do any of the following: – – – – Determine availability in storage Cross-dock to reach a customer quickly Place allocation against inbound material Determine when goods will arrive at facility
    56. 56. Crossdocking and Warehousing No stock! No stock! Storage! Storage! Customer Order Customer Order Ship Ship Receipt Receipt Cross-Docking Cross-Docking • Cross Docking helps to achieve the key logistics objectives of: • Stock reduction • Fixed resource reduction • More responsive operating systems
    57. 57. Warehouse Layout--Crossdocking
    58. 58. Total Cost of Ownership • You need to study, learn, and evaluate known solutions. • Then compare and explain the costs and benefits of each. • If you reduce your internal cost profile, you can provide the same or better service at a lower cost to your internal and/or external customer.
    59. 59. Building Cube Comparison Money Chart Rack Cost/Pallet $29.00 $32.00 $40.00 Build @ Cost/SF $14.72 $17.99 $26.11 Clear Height 22 ft 31 ft 51 ft Tiers 4 6 10 Aisle Width (feet) Cost/Pallet 5.00 $128.25 $113.00 $110.50 8.00 $150.29 $130.95 $126.16 12.00 $179.73 $154.87 $147.05
    60. 60. Building Cube Comparison Space Chart Clear Height 22 ft 31 ft 51 ft Tiers 4 6 10 Aisle Width (feet) Area/Pallet (square feet)* 5.00 6.74 4.50 2.70 8.00 8.24 5.50 3.30 12.00 10.24 6.83 4.10 * NOTE: Area/Pallet = The footprint divided by the number of pallets in a stack.
    61. 61. THANK YOU FOR COMING CATTAN Services Group, Inc. © 2005 CATTAN Services Group, Inc.

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