Warehusing operation in non governmental organization

WAREHOUSING OPERATION MANAGEMENT
By Guta Mengesha
MBA,MA in project management and Finance
Ethiopia
Email.gutamdg@yahoo.com or guta.mengesha@ju.edu.et
By Guta Mengesha 1/24/2021

What is warehousing?
Is set of activities that are involved in receiving, storing of items and preparing for re-
shipment.(Robert Hughes)
What is warehouse?
Is space, room, or building where material, semi-finished goods/items purchased and
manufactured are kept temporarily or for sufficient time utile removal to supply for users
(production, sale or for consumption).
Some times warehouse can be defined in terms of process or activities in warehouse. These
are receiving, Storing(Put-away),Issuing or dispatch).
What is warehousing operation?
Is satisfying customer needs and requirement while utilizing space, equipment and labor
efficiency.

Three major activities in warehouse
1. Inbound activities: includes Receiving-(include offload and
checking) and put-away, storing
2. Process activities: include picking, Replenishment, stock
rotation
3. Outbound activities: includes shipping and packing

1.Inbound activities
o Receiving: include unload and checking shipment. Unpack and inspect the material and
finally completion of a receiving report.
o Put-away: include activities like scanning barcode , moving given address and selection of
warehouse location like product code, product key, size, color. Wight, cost
2.Process Activities
o Order-picking: is process of pulling items from the inventory to fill customer order. There are
probability three methods. These are zone picking, Bach picking and wave picking.
o Replenishment: is movement of inventory from upstream to downstream. It prevent costly
inventory flowing through supply chain by maintaining efficient order. It also prevent costly
inventory overstocking.
o Stock rotation: It arrange the oldest unit in inventory so they are issued before new unit. Thus, it
reduces the loss from deterioration and obsolescence. There are three methods, First in, fist
out last in first out and bar code of data manufacture system.
3.Outbound activities
o Packing: is activity that minimize damage that can occur after an item has left the
production line
o Shipping: confirmation, invoicing, stealing, staging, and loading

Warehouse process
Why warehouse process?
1.To define functions in warehouse that means tasks in warehouse
Staffing-supervisors, stock controllers, store keepers
Security-Guards, insurance, building, anti-rodents, signature
Receive, store issue-clock wise
Documentation-anti-clockwise
Inventory control-periodic or perpetual reports
Facilities-Location, type of storage, material handling equipment, number and size
of distribution depots and unit load and the like
2.For smooth flow of work in warehouse- reducing a lead time and operating cost

Process in process- inbound activities
I. Receiving
II. Put-away
III. Dispatch
Tasks and process defined
1) Receiving-is accepting stocks in warehouse
2) Put-away- movement of goods from receiving dock to inventory storage area
3) Dispatch-is an outward process to send goods from our warehouse to customer next
destination.
Store management
Is the process of supplying and storing the various materials and parts. The purpose of
store management is to device the activities of storing in such a way that materials are
received on one end, kept inside storing room and issued to deliver to end users.

Receiving process in detail
Step 1.Vehicle report at warehouse entry gate and make required entries in arrival
register(AR).Arrival register includes date, time of arrival, vehicle plate number,
supplier name, driver name and mobile number
Step 2.Parking of vehicle at unloading dock
Step 3.Driver report at document control room
Step 4.Documenet verification
Step 5.Unloading the goods
Step 6.Inspection-counting and validation pre document
Step 7.Supervisor mention the quantities received against document. Sign and share the
same to driver and make entries of stock
Step 8.Stock updating-if excess and damage of good or short item is found and a
discrepancy note will be shared with supplier or warehouse from where we have
received the goods.
Then the put away activity begins

Objective of store keeping
 To procure and maintain requirement
 To provide maintenance of material
 To store, discarded and obsolete goods
 To receive and issue finished product
Functions of systematic store keeping
• Continuity in production(for manufacturing firm) /deliver service(NGO)
• Preservation
• Quality control
• Receipt and issue property
• Proper inventory control
• Reduced capital investment by under stocking
• Better record
• Buffer stock that avoid shortage and stoppage of production

Key performance indicators (KPI) in warehouse management
A. Defect per order
B. Supplier return rate
C. Accuracy in billing per transaction
D. Accuracy in specification
E. Return rate
F. Delivery in full or quantity per order
G. Ordered per delivered specification

Challenges in warehouse management
 Obsolescence of goods
 Dampness and corroded –like cement, iron product, stationary
 Dust-for electric devices
 Leakage-for gases like chlorine, sulpheric di0xide,hydrogen, petroleum
 Deterioration/Expiry –for agricultural product
 Moth, rate and insects-for food grains and cloth the like
 Toxic or flammables-fumes, liquid like fertilizers
 Ghuns-for bamboo, timber and wood
 Air, heat, light –like drugs, rubber and chemicals
 Theft
 Fire breaks
 Excess stock holding

Preservation of materials in warehouse
 Good housekeeping-cleaning , good ventilation, air conditioning
 Protection against fire-by use of fire proof rooms, having fire fighting equipment-like fire extinguishers, water and
chemical sprinklers, fire alarms, inert gas
 Dust protection-closed and dust free enclose
 Proper environment-proper air conditioning to avoid dampness, dehumidifiers maintain dryness, protections against
light, heat and rains.
 Protection against corrosion-by painting, coating, or greasing by anti- corrosive chemicals
 Security/Guard-lock doors, lock/windows, unauthorized entry prevention, to keep against theft, pilferage and accident
 Signature: issuance by authorized document
 Auditing: as material management to keep proper record, all materials received in store and keep as inventory must be
audited from time to time.
 Verification :can be done by two ways; Periodic counting one or twice a year by team assigned and continuous
counting which could avoid discrepancy and errors.
 Material Accounting :Cost of material is determined by its price and storing cost. Price is obtained by purchase order
but storing cost is by proper accounting of various cost involved in processing, handling, maintaining and storing the
item.

Functions of store
1) Identification of stock-classification and coding
2) Storing material above safety stock and up to maximum capacity
3) Control material required for production/or emergency purpose should not fall below
minimum level
4) Receive stocks or fixed asset from all sources
5) Inspect and check materials after receipt and before storing
6) Arrange and store materials systematically
7) Distribution of materials and maintain a flow
8) Maintain material efficiency, avoid wastage and theft
9) Keeping up-to-date records of all incoming and outgoing materials to much with
balance in stores
10) Stock taking and stock control-which involves periodic physical stock count to ensure
availability of materials when needed.

Types of warehouse space
1. Commercial: rented building
2. Government or state: at ports or harbors is common in emergency situation
3. Transit: for temporary storage destined for different locations and need
storage for short period
4. Bonded store: kind of store where good for which customs duty and excise
taxes not been paid kept.
5. Quarantine store: is kind of store where materials kept for sometimes for
inspections.
6. Open store: alternative for emergency situation but not ideal for perishable
product.
7. Pre-fabricated warehouse: where there are no permanent structures
available. This is common in emergency situation
8. Space that is owned and managed by organization

Methods of storing materials in warehouse
I. Bins-is a card attached to each bib, rack, shelf or containers. Is for small items which
are easily handled and is for general purpose items. Such items are fast moving. Is a
record of material entering and leaving and balances are verified. For ready reference
stock card is kept. Manual handling is possible.
II. Shelves/Racks: items which are large in size and heavy to store are kept. Movement is
done by mechanical devices.
III. Pallet: are designed platform for stacking load which can be moved by fork lift. Is
proper for regular shaped heavy items.
IV. Containers: particularly for liquid and gases.
V. Box and post pallet: for irregular shaped items
VI. Amirah and Cabinet: for expensive dust free environment. To store bag, box, regular
shaped items
VII. Stands: to store bars tube, sheet and plates of metal

Inventory management in warehousing
What is inventory
Definitions
Is stock of goods or list of goods. A dictionary meaning
Is material resource that will be used in a project in course of time
In accounting –Inventory means stock of finished goods.
From manufacturing point of view –Inventory include raw materials, work in process, stores.
Inventory Management
Is what to purchase? How to purchase? How much to purchase? From where to purchase?
Where to store? When to use for production or distribution?
Objective of inventory management
 To maintain optimum inventory to maximize profitability or satisfaction of beneficiary
 To meet the seasonal demand of product
 To ensure the level and site of inventory required
 To avoid both over and under stock inventory

Techniques of inventory management
Inventory management techniques are divided to three
1.Based on order quantity
I. Determination of stock level
II. Determination of safety stock
III. Economic order quantity
2. Bases on classification
I.ABC Analysis
II. VED analysis
III.HML analysis
IV. Aging Schedule
3.Based on Records
I. Inventory Report
II. Inventory Budget

1.Technique based on the order quantity of inventories
I. Stock level: Business must maintain optimum level of stock for smooth running of business process.
A. Minimum level: if stocks are below this operation will stop.
Formula Minimum level= Reorder level-(Normal consumptions Normal delivery)
B. Reorder level: is fixed between minimum and maximum level and is further level at which fresh
orders are made.
Formula Reorder level=Maximum consumption X maximum re-order period
C. Maximum level: is quantities of inventories that must be maintained. If quantity exceed this it will be
overstocking.
Formula Maximum level=Reorder level + Re-order quantity-(Minimum consumption x Minimum
delivery period)
D. Danger level: is level below the minimum level. It leads to stoppage of the production process.
Formula=Average consumption x Maximum re-order period for emergency purchase
E. Average stock level: is calculated as Minimum stock level+1/2 of re-order quantity maximum level.

1.Technique based on the order quantity of inventories ……

1.Technique based on the order quantity of inventories…..
Examples
Based on the information given below:
Minimum level(4) average level
Normal usage:100 unit/week
Maximum usgage:150 unit/week
Minimum usage:50 unit /week
Reorder quantity(EOQ)=500 unit
Log in time 5 to 7 week
Required 1.Reorder level
2. Maximum level
3.Minimum level
4.Average level

2.Technique based on the order quantity of inventories…..
II. Stock level
This implies extra inventories that can be drawn when actual lead time and/or usage rates are greater than expected. Safety
stock are determined by opportunity cost and carrying cost of inventories. If the business concerns maintain low level of
safety stock, it will lead to larger opportunity cost and the larger quantity of safety stock involves higher carrying cost.
III. Economic(Optimal) Order Quantity (EOQ)
Where annual demand is known and remain constant. Is an inventory level that maximize the total of carrying and ordering
cost. It found at balance between cost of placing an order and cost of holding it. It assumes that there will be no stock outs,
zero lead time and that we can safely order when at zero stocks. EOQ also mean a point at which ordering cost line equals
with carrying cost of an inventory.
Assumptions:
 Is only for one product
 Annual demand requirement is known
 Demand is even throughout the year that is no seasonality
 Each order is received in a single delivery
 There is no quantity discount

III. Economic(Optimal) Order Quantity (EOQ)……
Total cost=Annual carrying cost + Annual ordering cost
TC =Q H + D S Where H=Carrying cost S=Ordering cost Q=Order quantity D=Demand
2 Q
Using calculus, we take derivative of total cost function and set the derivative(slope) equal
to zero and solve for Q
EOQ=Q/2 H=D/Q S
Solving for Q
Q2=2DS
H

III. Economic(Optimal) Order Quantity (EOQ)……
Example: Based on the following information
for EOQ
Annual consumption =24,000unit
Purchase price per unit=Birr 5
Ordering cost per order=Birr 19/order
Inventory carrying cost is 20% of average
inventory
EOQ= 302 unit
Ordering cost= 24000 X 19= Birr 1,510
302
Inventory carrying cost=302 X 5 X 0.2 = Birr 151
2

2. Technique based on the classification of inventories
I.A-B-C Analysis
Is also one of inventory controlling technique
Is based on Pareto law that says ”In any large group there are significant few and
insignificant many”.
Materials are categorized in to three based on the value and volume of inventories. A,B and
C.
Volume and value A
Most important
B
Moderately important
C
Least important
% of number of inventories item 10 20 70
% value of the items 70 20 10

I.A-B-C Analysis
The benefit of using ABC analysis
 It ensure control of costly items where capital invested
 It ensure a considerable reduction in storage expenses
 For resource allocation as continues process with periodic tracking of items
 Increase economy as equal time and labor is not required for all items
Silent features of these inventories
Description Category A Category B Category C
Forecast Accurate forecast of
quantity
Approximate forecast No forecast
Staff Senior level
involvement
Middle level
involvement
Junior level
involvement
Degree of control Strategic degree Moderate degree Relaxed control

II. VED analysis
V=Vital items
E= Essential item
D= Desirable items
III. HML Analysis
Inventories are here classified in to three categories on the basis of the value of the inventories.
H=High value of inventories
M=Medium value of inventories
L=Low value of inventories
IV. Aging schedule of inventories or FNSD analysis
Inventories are classified based on the period of their holding. Where
F=Fast moving inventories
N=Normal moving inventories
S=Slow moving inventories
D=Dead moving inventories

3.Inventory control technique based on records
I. Inventory Budge: Is the kind of functional budget which facilitates the estimated
inventory required for the business concern during a particular period. Budget
preparation is based on past experience.
II. Inventory Report: Preparation of periodic inventory reports provide information
regarding the order level, quantity to be procured, and all other information related to
inventories. On the basis of this report, management takes the necessary decision
regarding inventory control and management in the business concern

What are inventory related costs?
1. Procurement: this is price of good and ordering cost. These includes cost of store keeping to replenish
every time, cost per order that has an administrative component, making an inquiry, tendering , common
paper works, preparing mathematical and technical analysis, ,handling packers at to your primes,
transportation, inspections upon arrivals of good.
2. Holding or Carrying cost: cost to carry an item in inventory for a prolonged period of time. It occur when
supply exceed demand. These costs include storage expense, people , equipment, interest on tied up
capital, property tax(if any), insurance, spoilage, obsolescence, pilferage, rent
3. Ordering cost: Cost of ordering and receiving an inventories
4. Shortage cost: cost when demand exceeds supply. Is cost associated with stock out. These may include lost
sale, back orders, additional cost of special order, loss of customer good will,

Reference
Warehouse operation system by Robert Hughes) 2020
Supply chain and logistic by Arivand Kumar 2021
Warehousing on imported good by Prof. Rajash J Taylor 2021
Financial management by C. Paramasivan and T.Subramanian

Warehusing operation in non governmental organization

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