Inventory Control: Part 4 – Physical Inventory

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Inventory Control:Part 4 – Physical Inventory

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Storage and Warehouse Activities

Receive Goods – Verify Order Quality, Quantity Identify Goods – Stock-Keeping Unit (SKU) Dispatch to Storage Hold Goods and Protect Pick Goods Consolidate (Marshal) Shipment Dispatch Shipment Maintain Information System

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Cube Utilization – 3 Dimensional Thinking

Utilize Pallets – 48״ x 40 ״x 4 ״ Platforms. Stored with 2״ Clearance. Can be Stacked with Forklifts.

Accessibility is Important.

Use of Racks Can Save on Handling Costs.

Maximize Cube Utilization.

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Warehouses, Forklifts, and Pallets

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Stock Location

Group Functionally Related Items Together – Order Picking Easier

Group Fast Moving Items Together – Work of Moving In and Out of Storage Reduced

Group Physically Similar Items Together – For Items that Require Particular Storage Facilities and Handling Equipment

Locate Working Stock and Reserve Stock Separately – Order Picking in Compact Area

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Stock Location

Fixed Location - Assign SKU Permanent Location. Minimizes Record Keeping but Poor Cube Utilization (Typically 50%). Point of Use Storage – Increases Accessibility and

Decreases Handling. Used with Just-In-Time (JIT) Central Storage - All Similar Items in One Location.

Floating Location – SKU’s Stored Where There is Appropriate Space. Good Cube Utilization but Access More Difficult. Normally Requires Computer.

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Order Picking

Area System

Zone System

Multi-Order System

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Inventory Accuracy Accuracy Needed for

MRP Gross to Net Satisfactory Customer Service Efficient Operation Analysis of Inventory

Inaccurate Records Can Result in Lost Sales Shortages and Disrupted Schedules Resulting in Poor Delivery Excess Inventory of Wrong Items Low Productivity Excessive Expediting

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Inventory Errors

Unauthorized Material Withdrawal

Unsecured Stockroom - Theft

Poorly Trained Employees

Inaccurate Transaction Recording

Lack of Audits and Inventory Counts

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High Tech Methods of Recording Stock

Bar Codes

Radio Frequency Identification (RFID). Used Successfully at Wal-Mart and FedEx.

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Auditing Inventory

Periodic Inventory – George Plossl Said “Taking Physical Inventory [is] Like Painting; the Results Depend on Good Preparation”. Normally Requires Shutdown, Excessive Paperwork, High Labor Costs, Poorly Trained Labor, Hurried Job.

Cycle Counting – Continuous Counts Each Day: A Items Counted More Frequently than B or C Items. Results in Timely Detection of Errors, Trained Personnel, and Less Disruption.

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Cycle Counting Example

ABC Inc. wishes to count A items 4 times per year, B items 2 times per year, and C items 1 time per year. There are 500 A items, 3,500 B items, and 11,000 C items. Plan a cycle counting procedure.

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Cycle Counting Example

Note: Daily Count = 20,000 / 250 = 80

ClassNumber of Items

Count Frequency

Number of Counts

Per Cent

Counts per Day

A 500 4

2,000 10% 8

B 3,500 2

7,000 35% 28

C 11,000 1

11,000 55% 44

Totals 15,000  

20,000 100% 80

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Counting Frequency

ABC Method

Zone Method

Location Audit Method

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Text Chapters Not Covered

Chapter 7 – Purchasing – SCM 442

Chapter 13 – Distribution – SOM 416

Chapter 14 – Products & Processes – SOM 416

Chapter 16 – Total Quality Management – SOM 467

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