0 Arab Academy Warehouse and Inventory Management PDF

10/9/2016
Arab Academy for Science and Technology
Basics of Inventory and Warehouse

Management
Solutions Business Consultant
Module 1 : Inventory Management

Session 1 : Aggregate Inventory Management
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Learning Objectives
• Introduction to Inventory
– Recognize at least five different classes of inventory.
• Aggregate Inventory Management
– Explain six functions of inventory.
– Identify three objectives of aggregate inventory management.
– Determine the five types of inventory costs.
• Financial Statements and Inventory
– Explain the relationship between assets, liabilities, and owners’ equity on
the balance sheet.
– Explain financial statements and their relationship to aggregate inventory.
– Describe four inventory valuation methods.
– Calculate inventory turns and days of supply measurements.

Introduction to Inventory
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What is Inventory?
inventory—Those stocks or items used to support
production, supporting activities, and customer
service
— APICS Dictionary
Activity Classes of inventory
Production Raw materials and WIP

Maintenance, repair, and
Operations
operating supplies
Finished goods, repair parts,
Customer service
and spares
Aggregate Inventory Management

Objectives
• Support business strategy and operations.
• Ensure that inventory practices support
financial objectives.
• Balance customer service, operations
efficiency, and inventory investment cost
objectives.
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Item Inventory Management

Management must establish decision rules about individual
inventory items:
• Importance of inventory items

• How to control inventory items
• How much to order at one time
• When to place an order

Aggregate Inventory
Management
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Inventory and the Flow of Materials

Supplier Supplier Supplier
Raw material Components MRO
WIP
Finished goods
Warehouse Warehouse Warehouse
Customer Customer Customer
Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by Permission of Pearson Education
Reasons for Carrying Inventory

• The only good reason for carrying inventory beyond current
needs is if it costs less than to not carry it.
• Inventory enables the company to operate with different
production rates and batch sizes throughout the supply,
production, and distribution system.
• Inventory decouples
– demand from supply
– customer demand from finished goods
– finished goods from component availability
– output of one operation from output of preceding operation
– materials to begin production from suppliers of materials
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Functions of Inventory
• Anticipation inventory
• Fluctuation inventory
• Lot-size inventory
• Transportation inventory
• Hedge inventory
• Buffer
Inventory Objectives
• Best customer service
• Low-cost plant operation
• Minimum inventory investment
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Inventory and Other Objectives

• Balance cost of carrying inventory with costs
of not carrying inventory.
– Customer service
– Changing production levels
– Placing orders
– Transportation costs
• Sum of the cost of carrying inventory and the
cost of not carrying inventory should be as low
as possible.

Inventory Cost
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Inventory Costs
Item
Carrying
Ordering
Stockout
Capacity-
related
Item Costs
Purchased items Manufactured items
Product Direct material
Transportation Direct labor
Customs duties Factory overhead
Insurance
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Carrying Costs
Capital Storage
costs
Risk costs
costs
Obsolescence
Space Damage
Opportunity cost Personnel Pilferage
Equipment Insurance
Deterioration
Problem 6.1
• Given the following percentage costs of
carrying inventory, calculate the annual cost if
the average inventory is $1,000,000.
Capital costs = 6%
Storage costs = 9%
Risk costs = 10%
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Problem 6.1 Solution

• Total cost of carrying inventory =
6% + 9% + 10% = 25%
• Annual carrying cost =
.25  $1,000,000 = $250,000
Ordering Costs
Purchase Factory
Production control
Purchasing cost
cost
Set up and
teardown cost
Lost capacity cost
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Problem 6.2
• Given the following data, calculate the
average cost of placing one order.
– Annual production control cost = $200,000
– Average cost of setup and teardown = $200
– Number of orders per year = 20,000

• Average cost of placing one order
= $200,000 + $200 = $210
20,000
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Stockout Costs
Causes of stockouts Stockout costs
Backorder costs
Demand during lead time
exceeds forecast and Lost sales
available inventory
Lost customers
Production and supplier Expediting costs

problems
cause inventory shortages Additional manufacturing
and purchasing costs
Capacity-Related Costs
Overtime
Hiring
Layoff
Training
Shift
premiums
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Problem 6.3
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Sales forecast 2,000 3,000 4,000 3,000
Production
Ending inventory
Average inventory
Inventory cost
Total cost of carrying ______________ inventory =

Quarter 1 Quarter 2 Quarter 3 Quarter 4
Sales forecast 2,000 3,000 4,000 3,000
Production 3,000 3,000 3,000 3,000
Ending inventory 1,000 1,000 0 0
Average inventory 500 1,000 500 0
Inventory cost $1,500 $3,000 $1,500 $0
Total cost of carrying anticipation inventory = $6,000
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Financial Statements
and Inventory
Accounting Systems
• Accounting systems classify activities of a
company into five types of accounts.
1. Assets
Balance sheet accounts 2. Liabilities
3. Owners’ equity
4. Revenues
Income statement accounts
5. Expenses
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Balance Sheet Equation

Assets = liabilities + owners’ equity
Assets—items you own

Liabilities—amounts you owe
Owners’ equity—what is left over after liabilities
are paid
Problem 6.4
a. If the owners’ equity is $1,000 and liabilities are
$800, what are the assets worth?
Assets = liabilities + owners’ equity
b. If the assets are $1,000 and liabilities are $600,

what is the owners’ equity?
Owners’ equity = assets – liabilities
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• If the owners’ equity is $1,000 and liabilities are

$800, the assets are worth
= $1,000 + $800
= $1,800
• If the assets are $1,000 and liabilities are $600,

the owners’ equity is
= $1,000 – $600
= $400
Income Statement
Income = revenue – expenses
Revenue Expenses
Income from sales of Costs incurred in

goods and services earning revenue
Increases owners’ Decreases owners’

equity equity
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Income Statement
Revenue $1,000,000
Cost of goods sold
Direct labor $200,000
Direct material $400,000
Overhead $200,000
Total cost of goods sold - $ 800,000
Gross margin (gross profit) $ 200,000
General and administrative expense - $ 100,000
Net income (profit) $ 100,000
Inventory and Financial Results

Because raw material used is
How aggregate inventory management
included as cost of goods sold on
is concerned with the flow of materials
the income statement, it offsets
through various inventory classifications
revenue, which reduces profit.
to produce a profit
Inventory is an asset on the balance WIP and finished goods inventory
sheet. include allocations of direct labor
and factory overhead, which also
offset revenue.
The sale of a manufactured product
converts inventory into revenue, Inventory on the books is not as
which includes a profit margin. good as inventory converted into
products and then sold.
From a supply chain management

perspective, converting inventory quickly
into sales has positive financial statement
implications.
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Problem 6.5
Revenue $
Cost of goods sold
Direct labor $
Direct material $
Overhead $
Total cost of goods sold $
Gross margin (gross profit) $
General and administrative expenses $
Net income (profit) $

Revenue $ $1,500,000
Cost of goods sold
Direct labor $ 300,000
Direct material $ 500,000
Overhead $ 400,000
Total cost of goods sold $ 1,200,000
Gross margin (gross profit) $ 300,000
General and administrative expenses $ 150,000
Net income (profit) $ 150,000
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Cash Flow Analysis

• Cash flow analysis is the inflow and outflow of
cash in the business over a given period of
time.
• To survive, a business must have the cash
available to pay its bills.
Cash Flow
Inventory status Effect on cash flow
Raw material Cash outflow

WIP Cash outflow
Finished goods Cash outflow
Accounts receivable paid Cash inflow
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Inventory Valuation
• First in, first out (FIFO) method
• Last in, first out (LIFO) method
• Average cost system
• Standard cost accounting system
Inventory Turns
A measure of how effectively inventory is being used
annual cost of goods sold
Inventory turns = average inventory in dollars
Example:
Annual cost of goods sold = $1,000,000
Average inventory = $500,000
$1,000,000
Inventory turns = $500,000 = 2
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Days of Supply
inventory on hand 6,000
Days of supply = = = 30 days
average daily usage 200
• Days of supply is used to measure the

relationship between usage (sales) and
inventory
• In this example, 6,000 units are sold on average
over a period of 30 days at 200 units per day.
• Inventory turns every 30 days, or 12 times a
year (inventory turns are 12).
Problem 6.6
a. Inventory turns =
Annual cost of goods sold

b. Average inventory =
Inventory turns
c. Reduction in inventory =
d. Annual savings =
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$10,000,000
a. Inventory turns = =4
$2,500,000
Annual cost of goods sold

b. Average inventory =
Inventory turns
= $10,000,000 = $1,000,000
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c. Reduction in inventory = $2,500,000  $1,000,000 = $1,500,000
d. Annual savings = 20% x $1,500,000 = $300,000

Session 2 : Item Inventory Management
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Learning Objectives
• Order Quantities
– Describe four common lot-size decision rules.
– Explain the relationship between ordering costs and carrying
costs in determining the economic order quantity.
• Independent Demand Ordering Systems
– Describe the characteristics of and differences between order
point and periodic review systems.
– Calculate the order point.
– List three methods of determining when an order point has
been reached.
– Explain the relationship between safety stock and service levels.
Learning Objectives (cont.)

• ABC Inventory Control
– List the three basic steps of the ABC inventory
control process.
– Classify part numbers into groups based on annual
usage.
• Auditing Inventory Records
– Describe the advantages of cycle counting over
periodic inventory audit.
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Order Quantities
How Much to Order at One Time

• Objectives:
– Maximize customer service.
– Minimize sum of all costs involved.
• Decision rules for determining what lot size to
order at one time:
– lot-for-lot
– fixed order quantity (FOQ)
– economic order quantity (EOQ)
– order n periods of supply
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Lot-for-Lot
• In lot-for-lot,
– only required amount is ordered
– order quantities change as requirements change
– no unused lot-size inventory is created.
• Lot-for-lot is used
– for dependent and independent demand items
– for expensive components (A items)
– for perishable items
– in a lean environment.
Fixed Order Quantity

• Fixed order quantity
– Is a technique that causes orders to be generated
for specific amounts
– is quick and simple
– often is based on what seems reasonable
– leads to inventory buildup
– does not always produce the best results.
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Order n Periods of Supply

• The required amount to satisfy demand for a
certain number of periods is ordered.
• No unused lot-size inventory is created.
• It is used for
– dependent and independent demand items
– inexpensive components (C items).
EOQ Manages Cost Tradeoffs

Inventory carrying costs Ordering costs
But ordering in
Ordering in small small quantities
quantities minimizes requires more
inventory carrying orders and
costs. increases order
costs.
The EOQ model manages tradeoffs by balancing

ordering costs and inventory carrying costs.
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Assumptions
• EOQ is based on the following assumptions:
– Demand is relatively constant and known.
– Items are produced or purchased in lots or
batches.
– Order preparation costs and inventory carrying
costs are constant and known.
– Replacement occurs all at once.
EOQ Calculation Process

• Calculate annual ordering cost.
• Calculate annual inventory carrying cost.
• Calculate total annual cost.
• Evaluate alternative order quantities.
• Calculate EOQ.
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Step 1: Annual Ordering Cost
Annual ordering cost = number of orders x cost per order ($)
A (annual demand) 8,000 units

Number of orders = = = 10 orders
Q (lot size) 800 units
Cost per order = $25
Annual ordering cost = 10 orders  $25 per order = $250
Step 2: Annual Inventory Carrying Cost

Annual inventory carrying cost = average inventory  carrying cost
(a) Determine average inventory (Q/2) in units
Q (lot size) 800 units

Average inventory = = = 400 units
2 2
800
(Average inventory)
Units in stock
Given:
Q
400
Cost per unit (c) = $10
Carrying cost rate (i) = .25
Time
(b) Determine carrying cost in dollars
Q
Inventory carrying cost =  c  i = 400  $10  .25 = $1,000
2
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Step 3: Total Annual Cost

Total annual cost = annual ordering cost + annual carrying cost
Total annual cost = $250 + $1,000 = $1,250

not equal
Conclusions:
• Annual ordering cost does not equal annual carrying cost.
• The EOQ is the quantity at which the two costs are equal.
• We need to look further into identifying the EOQ.
Step 4: Evaluate Alternative Order

Quantities
Evaluation of EOQ data
Annual Order Order Cost per Carrying Ordering Carrying
Total
demand costs quantity unit cost rate cost cost
cost
(A) (S) (Q) (c) (i) (AS/Q) (Qci/2)
8000 25 200 10 0.25 1000 250 1250
8000 25 300 10 0.25 667 375 1042
8000 25 400 10 0.25 500 500 1000
8000 25 500 10 0.25 400 625 1025
8000 25 600 10 0.25 333 750 1083
8000 25 700 10 0.25 286 875 1161
8000 25 800 10 0.25 250 1000 1250
8000 25 900 10 0.25 222 1125 1347
8000 25 1000 10 0.25 200 1250 1450
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EOQ: Cost and Quantity Relationships

1600
1400
EOQ
1200
1000
Cost in dollars
800
Ordering costs
600
Carrying costs
Total cost
400
200
0
0 200 400 600 800 1000 1200
Order quantity
Economic Order Quantity Formula

The EOQ is based on the following mathematical relationship:
1600
Inventory carrying cost = ordering cost
1400
EOQ
1200 Qic AS
=
Cost in dollars
1000
2 Q
800
Ordering costs
600 Carrying costs
Total cost
400
Solving for Q gives the formula for EOQ.

200
0 2AS
0 200 400 600 800 1000 1200 EOQ =
Order quantity ic
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EOQ Sample Calculation

For example, if
A = 8,000 units
S = $25 per order
i = 25% = 0.25
c = $10 per unit
EOQ = √ 2×8,000 units×$25

0.25 × $10 = 400 units
Problem 7.1
A = 100,000 units
S = $32 per order
i = 20% = .20
c = $8 per unit
2AS
EOQ=
ic
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A = 100,000 units
S = $32 per order
i = 20% = .20
c = $8 per unit
EOQ = √ 2 x 100,000 units x $32

0.2 x $8 = 2,000 units
EOQ Lot Sizing Control

• Of the following, what can be controlled?
– annual demand
– cost of carrying inventory
– unit cost
– ordering cost
2AS
EOQ=
ic
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Independent Demand
Ordering Systems
When to Place an Order

• If an order is placed late, there is the
possibility of a stockout.
• If an order is placed early, there will be extra
inventory and cost.
• A system is needed to tell when to order.
• Common systems include
– order point system
– periodic review system.
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Order Point System

Quantity
OP
DDLT
SS
LT
Time
• Order point = demand during lead time + safety

stock
• OP = DDLT + SS
Key Assumptions
• Order quantities usually are fixed.
• Intervals between replenishments are not
constant.
• Demand is stable and shows random
variation.
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Problem 7.2
• Order point calculation
– demand = 100 units per week
– lead time = 4 weeks
– safety stock = 100 units
– order point = DDLT + SS
– order point = ?

 Order point calculation
− demand = 100 units per week
− lead time = 4 weeks
− safety stock = 100 units
− order point = DDLT + SS
= 100 (4) + 100
= 500 units
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Problem 7.3
• SKU lead time = 4 weeks

• average demand = 200 units
per week
• safety stock = 1 week’s
demand
• order quantity = 2,000 units
Calculate the order point.

• Order point calculation
– demand = 200 units per
week
– lead time = 4 weeks
– order quantity = 2,000 units
– safety stock = 200 units
– order point = DDLT + SS

= 200 (4) + 200
= 1,000 units
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Safety Stock
• Safety stock is used to prevent a stockout.
• The amount of safety stock carried depends on
– variability of demand during the lead time
– frequency of ordering
– desired service level
– length of the lead time
– ability to forecast and control lead times.
Service Levels
• The cost of carrying safety stock plus the cost
of a stockout should be at a minimum.
• Costs of a stockout:
– cost of backorder
– cost of lost sales
– cost of lost customers
• All are difficult to calculate.
• Management should state the acceptable
number of stockouts per year.
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Problem 7.4
Calculation of safety stock for a target service level
10-month demand: 10,000 units Order quantity: 100 units MAD: 160 units
Step 1: Number of orders per 10-month period Stockouts: 5 per

total demand 10-month period
Number of orders per 10 months =
order quantity
Step 2: Target service level
n stockouts per 100 orders = 100 – n orders with no stockouts

100 – n
Service level = = service level percent
100
Step 3: Safety stock level
Safety factor service level % = from safety factor table

Step 1: Number of orders per 10-month period
Number of orders per 10 months = total demand

order quantity
10,000
= = 100 orders
100
Step 2: Target service level
5 stockouts per 100 orders = 95 orders with no stockouts

100 – 5
Service level = = .95 or 95%
100
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Problem 7.4 Solution (cont.)
Step 3: Safety stock level
Safety factor 95% service level = 2.06 (see safety factor table)
Safety stock = safety factor × MAD
= 2.06 × 160 units = 330 units
Determining When the Order Point is Reached
• Three basic systems:

– two-bin system
– kanban
– perpetual inventory record system
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Two-Bin System
• Quantity equal to order point quantity is put in bin 2.
• When bin 1 is used up, bin 2 is used while bin 1 is
replenished.
Kanban
• Kanban = card or signal
• Originated with lean
• Used as visual signal to indicate replenishment
is required
• Examples include card, light, or container
Examples:
Paper card
Light Container
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Perpetual Inventory Record

Order quantity = 500 units
Part number 426254
Order point = 100 units
On
Date Received Issued On hand Allocated Available
order
01 500 500
02 500 400 100
03 500 500 400 100
04 500 400 100 0 100
05 500 600 600
Periodic Review System

Periodic review versus order point system
Order point Periodic review

Characteristic
system system
Interval between Varies depending Fixed and

orders on actual usage constant
Order quantity Usually fixed Varies by period
The periodic review system also is called the fixed reorder

cycle inventory model and fixed-interval order system.
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Uses of the Periodic Review System
• The periodic review system is used when

– products are perishable, with short shelf life
– receiving deliveries of many items from one
source at one time is economical
– tracking and posting transactions of many small
issues from inventory are costly
– ordering costs are low; short-interval ordering is
not an issue.
Periodic Review System

Units in stock
Target level (T)

Q1 Q2 Q3
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Periodic Review Example

D = demand per working day = 300 ÷ 5 = 60/day
R = review period = 20 days
L = lead = 2 days
SS = safety stock = 3 days’ supply = 180 units
T = target level = D (R+L) + SS

= 60 (20 + 2) + 180 = 1,500 units
I = inventory on hand = 260 units
Q = order quantity = T–I

= 1,500 – 260 = 1,240 units
Problem 7.5
• T = D (R + L) + SS
• Order quantity = T–I
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• T = D (R + L) + SS
= (10) (6 + 2) + 10
= 90 cases
• Order quantity = T–I

= 90 – 35
= 55 cases

ABC Inventory Control
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ABC Inventory Control

Objective:
Application of different levels of control based on the
relative importance of items.
Key questions
• What is the importance of the inventory items?
• How are they to be controlled?
Principles of ABC Inventory Control
• A small number of items will represent the

most critical values.
• ABC inventory control separates the most
significant items from the less important.
• It is used to determine the degree and level of
control required.
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ABC Classification
• A items
20 percent of the items account for
80 percent of the total dollar usage
• B items
• C items
ABC Process
Establish the item characteristics that influence the results of
inventory management:
• annual dollar usage
• scarcity of material
• quality problems
Classify items into groups based on the criteria established.
Apply a degree of control in proportion to the importance of the

group.
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Example of ABC Analysis: Step 1

Part number annual usage analysis
Annual Annual Annual
Part number unit usage unit cost dollar usage
1 1,100 $2 $ 2,200
2 600 40 24,000
3 100 4 400
4 1,300 1 1,300
5 100 60 6,000
6 10 25 250
7 100 2 200
8 1,500 2 3,000
9 200 2 400
10 500 1 500
Total $38,250
ABC Classification Calculation Steps
• Rank part numbers by annual dollar usage in descending

order.
• Calculate cumulative dollar usage: add the dollar usage of
each part number to the cumulative total for the preceding
part. (Part 2’s cumulative usage is $24,000.)
• Calculate the cumulative percentage of dollar usage in the
same way. (Part 2’s cumulative percentage of dollar usage is
63 percent.)
• Calculate the cumulative percentage of items in ascending
order. Because there are 10 parts, each part number accounts
for 10 percent of the cumulative total.
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Example of ABC Analysis: Step 2

Ranking of part numbers by annual usage
Part Annual Cumulative Cumulative Cumulative
number dollar dollar usage percent percent of items
usage dollar usage
2 24,000 24,000 63 10
5 6,000 30,000 78 20
8 3,000 33,000 86 30
1 2,200 35,200 92 40
4 1,300 36,500 95 50
10 500 37,000 97 60
3 400 37,400 98 70
9 400 37,800 99 80
6 250 38,050 99 90
7 200 38,250 100 100
Problem 7.6
Item number Annual Cumulative Cumulative Cumulative Class
dollar dollar usage percent dollar percent of
usage usage items
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usage usage items
8 241,873 241,873 48.37 10 A
2 156,127 398,000 79.60 20 A
5 42,749 440,749 88.15 30 B
7 19,562 460,311 92.06 40 B
1 13,189 473,500 94.70 50 B
10 10,112 483,612 96.72 60 C
4 8,493 492,105 98.42 70 C
6 5,589 497,694 99.54 80 C
9 1,962 499,656 99.93 90 C
3 344 500,000 100.00 100 C
500,000
Control Based on ABC Classification

Level of control
Two general rules:
Tight
–Have plenty of
Level of control
low-value items. Normal

–Focus control Least
possible
effort on A items.
A B C
Item classification
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Auditing Inventory
Records
Auditing Inventory Records

Auditing methods
Periodic inventory Cycle counting
• Physical inventory count of • Counting is continual.

all inventory. • Updates records but also finds
• Supports appraisal of and prevents causes of error.
inventory value for the • Items are counted in cycles,
annual financial statements. some more frequently than
• For the benefit of others.
stakeholders in the • For the benefit of operations
company. improvement and customer
service.
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Periodic Inventory Audit

Periodic inventory audit
Drawbacks:
• Production is disrupted.
• Labor and paperwork are expensive.
• Counters often are inexperienced and error
prone.
• Accuracy, as a result, can suffer.
• No priority for improving inventory control
processes.
Cycle Counting
Cycle counting
Key features of cycle counting:

• It occurs continually throughout the year.
• Counting occurs every day.
• It uses trained and dedicated staff.
• All items are counted a predetermined number
of times a year depending on their importance.
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Cycle Counting Advantages

Cycle counting
Advantages
• Timely detection and correction of problems
• Little or no loss of production time
• Higher level of counting accuracy
• Determination and elimination of causes of
error
Count Frequency: ABC System

• Classify items by their importance into A, B,
and C categories.
• Establish rules for count frequency of each
classification.
• Establish count schedule.
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Count Frequency Schedule Example

Number Count Number
Classification
of items frequency of counts
A 2,000 12 24,000
B 3,000 4 12,000
C 5,000 2 10,000
Total counts 46,000
Workdays per year 250
Counts per day 184
Problem 7.7
Number Count Number

Classification
A 1,100 12
B 1,650 4
C 2,250 2
Total counts

Counts per day
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Number Count Number

Classification
A 1,100 12 13,200
B 1,650 4 6,600
C 2,250 2 4,500
Total counts 24,300
Counts per day 98

Session 3 : Inventory Management
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Key Concepts:
• Inventory and inventory management basics
• Key supply chain performance indicators
• Types of inventory and cost categories
• Understanding the purpose of inventory in the
supply chain
• The effects of inventory on financial
statements
• Topic 1: The Need for Inventory

• Topic 2: Aggregate and Item Inventory
Management
• Topic 3: Flow of Material
• Topic 4: Functions of Inventory
• Topic 5: Inventory-Related Cost Categories
• Topic 6: Effects of Inventory on the Financial
Statements
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The Need for Inventory
The Need for Inventory
Inventory
Production Customer Service
 Raw materials Supporting Activities  Finished goods

 Work-in-process  Spare parts
items  Maintenance
 Repair
 Operating supplies
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Inventory Management Roles

Purchasing and materials management: adequate
raw materials at low inventory cost
Manufacturing and finance: efficient and low-cost

production balanced against low inventory cost
Sales and marketing: sufficient inventory to meet

customer delivery requests and service levels
Inventory Management KPIs

Hit customer service
targets
Reduce Quality
inventory costs Availability
On-time delivery
Holding
Ordering
Transporting
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Discussion Question
What is the purpose of having inventory policies?
What do they specify?
Answer:
Inventory policy is a way of formalizing the results of strategic inventory
decisions so that they can be implemented consistently.
Policies can specify:
 Centralized or decentralized inventory planning and/or warehousing,
frequency of communications and coordination, or a geographical inventory
positioning strategy such as postponement
 Rules for order quantities, order timing, when to act on exceptions to rules,
and amounts of specific items to purchase versus produce.

Aggregate and Item

Inventory Management
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Aggregate Inventory Management

Aggregate inventory Ways to aggregate inventory
management objectives  Demand pattern
 ( men shoe vs. women shoe)
Support organizational strategy  Production process
and operations.
 filling process vs. mixing process
Support financial objectives.  Stage of production flow
 RM vs. FG
Balance:
• Customer service
 Relative value to organization
• Operations efficiency  ABC
• Inventory investment cost  Product or SKU family or type
objectives.
 Families like models
 Distribution pattern
 Distribution channel
Item Inventory Management

• Goal is to enable planners to translate
strategic inventory goals into measurable
results (proper production and distribution of
each SKU).
• Inventory rules
– When to order inventory
– How to determine order size per order
– Relative importance of each inventory item
– Inventory control procedures for individual items
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Flow of Material
Types of Inventory
(1) Raw (2) Work-in- (3) Finished
materials process (WIP) goods (FG)
(4) MRO
Raw
Component End
materials Manufacturer Distributor
supplier customer
supplier
(5) In-transit
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Functions of Inventory
Why Have Inventory?

Anticipation inventory
(against anticipated sales, promo, season)
Decoupling (like WIP) Safety stock

(fluctuation for supply and demand)
Inventory
Buffer inventory
functions
Lot-size or cycle stock
(to make the production (because discount , FCL,..)
and Bottleneck steady)
Hedge inventory
(hedge against price increase ,political issues, crisis,..)
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Inventory-Related Cost
Categories
Inventory Costs
• Acquisition costs: order quantity × unit cost
• Landed costs: product cost plus logistics costs
• Carrying (holding) costs:
– Storage costs: rent, depreciation, operating cost,
taxes, material-handling expenses, equipment leases,
power, operating costs
– Capital costs: interest, financing, payments to
creditors and investors
– Risk costs: insurance, inventory value reductions and
write-offs
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Effects of Inventory on
the Financial Statements
Effects of Inventory on Financial

Statements
Balance Sheet Income Statement Cash Flows
• Unsold inventory is • COGS: Product • Decrease in inventory

current asset. expenses booked increases cash
when units sold. position.
• Only profit margin
portion contributes to • Operating expenses: • Inventory write-offs
net income when Period expenses reduce owners’ equity
sold. booked when and may require
incurred. reducing debts to
• Can determine
maintain covenants.
average inventory • Reducing costs is
• Inventory write-offs will reduce
from balance sheet. more effective than NI and so equity
increasing sales • Financial need
volume because equity/liabilities high
increasing sales will • So when equity will be

reduced the equity/liabilities
increase also variable will be reduced which not
cost. convenient
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Discussion Question
Which of the following measures the efficiency of an
organization?
a) Standard costing
b) Inventory turnover
c) Gross profit
d) Cost of goods sold
Answer: Inventory turnover (also called inventory turn).
Inventory Turnover Ratio = COGS/Average Inventory

Session 4 : Inventory Planning and Control
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Key Concepts:
• Inventory planning
• Optimizing locations of inventory
• ABC analysis
• Methods of determining order quantities
• Order systems
• Using safety stock and safety lead time
• Tracking inventory
• Topic 1: Inventory Planning

• Topic 2: Inventory Control
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Inventory Planning
Inventory Planning
Centralized inventory planning
Systemwide inventory
optimization
Control Push Push Push
Suppliers Manufacturer Distributors Wholesalers Retailers Customers
Decentralized inventory planning

Autonomy
Suppliers Manufacturer Distributors Wholesalers Retailers and local
Pull Pull Pull expertise
Hybrid systems Push

Suppliers Manufacturer Distributors Wholesalers Retailers Customers
Point of push/pull moved to Pull Pull
another point in SC
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Echelons and Echelon Inventory

Suppliers’ Consolidation Manufacturing
DCs Wholesalers Retailers
warehouses warehouses warehouses
Each column is
one echelon.
Echelons Echelon inventory
• Add costs. • Considers inventory at a node to
• Provide a buffer for later echelons. include all inventory at that echelon
• May provide a consolidation or plus all inventory at later points in SC
break-bulk service that may reduce and in transit.
total inventory/costs. • Aggregates demand for more
accurate order calculation.
ABC Inventory Analysis

A B C
80 80% of 15% of 5% of
Percentage
of Annual
70
A revenue revenue revenue
Revenue
60
Items comes from comes from comes from
Generation 50 20% of 30% of 50% of
40 inventory inventory inventory
30 items. items. items.
20
10
0 B Items C Items
10 20 30 40 50 60 70 80 90 100
Percentage of inventory items
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usage usage items
8 241,873 241,873 48.37 10 A
2 156,127 398,000 79.60 20 A
5 42,749 440,749 88.15 30 B
7 19,562 460,311 92.06 40 B
1 13,189 473,500 94.70 50 B
10 10,112 483,612 96.72 60 C
4 8,493 492,105 98.42 70 C
6 5,589 497,694 99.54 80 C
9 1,962 499,656 99.93 90 C
3 344 500,000 100.00 100 C
500,000

Inventory Control
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Lot-for-Lot versus Fixed Order

Quantity (FOQ)
Fixed Order Quantity Lot-for-Lot
Quantity sold in period Quantity sold in period
Quantity shipped Quantity shipped

= Economic order
quantity (EOQ)
Discussion Question
Fixed quantity ordering will be most effective
a) to counter highly variable lead times.

b) when demand is light and
unpredictable.
c) when quantity discounts are desired.
d) in a lean production situation.
Answer: c
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Economic Order Quantity (EOQ)

Annual EOQ—an FOQ order model
cost
Total
Minimum cost occurs when
cost
total cost
Minimum
carrying costs = ordering costs

2  A  S
Carrying EOQ =
costs
i  c
Q = Order quantity in units
Ordering (or
setup) costs i = Annual carrying cost %
Order c = Unit cost in $
Optimal order quantity A = Annual usage in units
quantity S = Ordering costs in $/order
Basic EOQ model assumes known demand, lead time; no discounts.
Step 4: Evaluate Alternative Order

Quantities
Evaluation of EOQ data
Annual Order Order Cost per Carrying Ordering Carrying
Total
demand costs quantity unit cost rate cost cost
cost
(A) (S) (Q) (c) (i) (AS/Q) (Qci/2)
8000 25 200 10 0.25 1000 250 1250
8000 25 300 10 0.25 667 375 1042
8000 25 400 10 0.25 500 500 1000
8000 25 500 10 0.25 400 625 1025
8000 25 600 10 0.25 333 750 1083
8000 25 700 10 0.25 286 875 1161
8000 25 800 10 0.25 250 1000 1250
8000 25 900 10 0.25 222 1125 1347
8000 25 1000 10 0.25 200 1250 1450
7  140 © APICS CONFIDENTIAL AND PROPRIETARY
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Ordering Systems: Order Point System

Order Point = Demand During the Lead Time + Safety Stock
Order Point = (50 Units/Week  2 Weeks) + 100 Units = 200 Units
Order received
Order lead
300 Order quantity is
time
Units in inventory
fixed (e.g., EOQ)
200
Order
point
100
Order intervals can vary Safety stock
0
2 4 6 8 10 12 14 16
Time (weeks)
Ordering Systems: Periodic Review

System
Maximum-Level Inventory = D (T + L) + SS
Order Quantity = Maximum-Level Inventory  Inventory On Hand
D = Demand/unit of time, T = Order interval, L = Lead time, SS = Safety stock
Order point Order received Maximum-level inventory
300
Units in inventory
Order
quantity
200
varies
100
Order lead Safety stock
time Order intervals are fixed
0
2 4 6 8 10 12 14 16
Time (weeks)
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Periodic Review System vs. order point system

Periodic review versus order point system
Order point Periodic review

Characteristic Min-Max
system system
Varies Variable when

Interval Fixed and
depending on below the min
between orders constant
actual usage we request.
Variable as we
order the
Order quantity Usually fixed Varies by period
quantity to
reach the max.
The periodic review system also is called the fixed reorder

cycle inventory model and fixed-interval order system.
Discussion Question
A min-max ordering system is
a) like an order point system because

order quantity is allowed to vary.
b) like a periodic review system because
order intervals are allowed to vary.
c) designed to be used with EOQ.
d) a system that can vary its order timing
and order amounts.
Answer: d
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Safety Stock
• Inventory retained to protect against 100%
demand and lead time variations. 98%
• Set target frequency for use; ± this 95% Diminishing
frequency is reviewed.
returns
• Methods for setting level: fixed
Customer
amount, coverage, statistical.
Service
• Need to balance cost of safety stock
and cost of stock outs.
• To decrease: less frequent orders, less
demand variability, shorter lead time,
more accurate forecasts. Safety Stock
• Organizational, regulatory, or industry
Beware of diminishing returns.
requirements may mandate a is the decrease in the marginal(per-unit) output of a process
minimum level of safety stock. as the amount of a single factor is increased, while the
amounts of all other factors of stay constant , e.g. adding
more safety stock while not adding more customer service
will result in low marginal unit
Safety Lead Time

• Replenishment orders placed before (or after)
normal order point.
• Could result in overstocks.
• Can impact bullwhip effect.
• Large orders with long lead times, e.g., on
container ships, could result in significant
overstocks (or stockouts).
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Organization of Storage Locations

Receiving
Cross- Single
Bulk storage docking Aisle selective
space rack
storage
Order picking area
Assembly, packaging, and/or unitizing area
Staging
Goals: optimal velocity and cube utilization, 100% accessibility
Stock Location Methods

Random • Maximizes cube utilization
location • Need locator file
Fixed location • Need more space, but learn fixed locations
ABC • Good for secure/fast-moving requirements
By function • Good for modular units, assists assembly
By velocity • Place fast-moving items near docks
By physical
• Frozen or refrigerated items, bulky items
similarity
Separate • Bulk storage items (or defective/obsolete)
reserve stock out of way, replenishes working stock
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Methods of Tracking Inventory
Inventory tracking system Improving tracking

Order of steps is important: • Keep it secure.
1. Identify the item by SKU. • Keep it neat.
2. Verify the quantity. • Make labels easily visible
3. Create a record of the and put on everything.
transaction. • Use bins and arrangements
4. Execute the inventory to ease counting.
movement. • Treat A, B, C items suitably.
• Use technology.
Methods of Assessing Inventory

Accuracy
Periodic Traditional method, requires store shutdown.
Annual count of all items.
Count
Often done by temporary employees.
Disruptive, expensive, error-prone.
Necessary for, e.g., retail.
May Jun July Aug Sep Oct Nov Dec Jan Feb Mar Apr
Cycle Count Count some items each day.

Count all items a set number of times annually.
Count A items more often than B or C items.
Timely correction of errors, no store shutdown.
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Count Frequency Schedule Example

Number Count Number
Classification
A 2,000 12 24,000
B 3,000 4 12,000
C 5,000 2 10,000
Total counts 46,000
Counts per day 184
Number Count Number

Classification
A 1,100 12
B 1,650 4
C 2,250 2
Total counts

Counts per day
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Number Count Number

Classification
A 1,100 12 13,200
B 1,650 4 6,600
C 2,250 2 4,500
Total counts 24,300
Counts per day 98
Module 2 : Warehouse Management

Session 1 : Logistics
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Key Concepts:
• Objectives of transportation and stakeholders
• Modes of transportation
• The role and key considerations of warehousing
• Materials-handling options and automated
systems
• Balancing costs and constraints
• Customer service best practices
• Topic 1: Transportation
• Topic 2: Warehousing
• Topic 3: Transportation and Warehousing
Tradeoffs
• Topic 4: Customer Service
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Transportation
Transportation Overview
• Bulk of logistics budget • Factors to consider:

– Objectives and considerations
• SC evolution:
– Stakeholders in
– 2001–2008: U.S. share of
transportation decisions
worldwide GDP declined.
– Modes of transportation
– 2008 recession: Demand for
transportation plummeted – Considerations in mode
and excess capacity was selection
major issue.
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Objectives and Considerations

Movement of materials Temporary storage
1 through the network 2
• Park without
unloading for short-
• Time issues
term storage.
• Cost issues
• Take early,
• Environmental issues roundabout route
from crowded facility.
• Take off without final
destination (use
GPS).
Goals of Transportation Stakeholders
1 Shipper Goals 2 Recipient Goals 3 Carrier Goals

Convenient schedule On-time arrival Convenient schedule
Low cost (for them) Low cost (to them) of Good revenue for
of shipping shipping service
Limits on liability for No loss, damage, Limits on liability for
loss, damage, etc. etc. loss, damage, etc.
Good infrastructure Good infrastructure Good infrastructure
(Who pays?) (Who pays?) (Who pays?)
Normally who pay : governments or tax payers
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Goals of Transportation Stakeholders

(continued)
4 Government Goals 5 Public Goals

Stable, efficient, predictable, and Stable, efficient, predictable, and
affordable passenger and affordable passenger and
commercial service commercial service
Infrastructure suitable for national Balance between convenience,
defense uses cost, environmental consequences,
etc.
Concerns: ownership (public or Concerns: ownership (public vs.
private?), funding (taxes?) private?), funding (taxes?)
Modes of Transportation: Rail

Capabilities Market conditions Limitations
Fuel-efficient Low variable costs, Restricted
Heavy loads (equal to high fixed costs destinations, little
water) Few carriers (U.S.), chance to expand
Any load (with bulk mostly consolidated Slow because of

restrictions) Growth in China still stops, switching
possible, little (especially in EU)
Low-value cargo
elsewhere Rough ride
Relatively low rates
Intermodal options
Low variable costs growing
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Modes of Transportation: Motor

Capabilities
Carriers
Market Tradeoffs
Small shipments; high- Low fixed costs with tax- Labor-intensive with
value items; short to funded infrastructure rising rates
medium hauls
High variable costs: Intense competition
Greatest accessibility for wages, equipment, etc. with resulting
pickup and direct bankruptcies
Easy entry, many carriers
delivery
available; TL, LTL, Less hazardous than rail
Speedy delivery specialty or water for high-value
Some regulatory limits goods
on type of cargo
Modes of Transportation: Water

Capabilities
Transport
Market Tradeoffs
Huge, heavy loads Used in U.S. Great Lakes, Limited accessibility,
hauled for distances rivers; EU rivers; China other transport required
Low-value, high-density and SE Asia and to/from port
cargo such as coal, crude elsewhere Slow travel (trains faster
oil, or grain Waterways maintained but higher cost)
Very low per-mile cost by taxpayers Harmful to environment
and fuel-efficient Low fixed costs for ease
of entry, private fleets
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Modes of Transportation: Pipeline

Capabilities
Transport Challenges
Special adaptation for crude oil, Cargo limited to liquids, slurry
petroleum products Costly construction
No packaging required Monopolies (most are
Storage and transport combined common carriers)
Usable 24/365 in all weather Limited access
Fixed costs similar to rail; low Political barriers at borders
operating cost (no driver required) Vulnerable to terrorism
New types of cargo being developed
in slurry form
Modes of Transportation: Air Transport

Capabilities Market Tradeoffs
Speed—may eliminate Low fixed cost, high Cargo secondary to
safety stock variable cost passenger service
Smooth ride for Tends to be run by (except FedEx, etc.)
valuable and government or heavily Very high delivery
perishable cargoes— regulated costs per ton/mile
or any cargo Competes for Limited access (some
Lower packaging transoceanic ( ‫الرحالت‬ help from intermodal)
expense ‫) العابرة عبر المحيط‬carriage Reliability problems
Tiny percentage of
overall cargo market
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Transportation Mode Selection Criteria:

Value Density vs. Packaging Density
Fast delivery
Value Density
(€/m3 or $/ft3) Low cost
transport and
Efficient materials
storage
handling (automatic
sorting)
Packaging Density
(#/m3 or #/ft3)
Discussion Question
The use of overnight express shipping carriers to
distribute diamond-studded watches is an example
of a product with
a) high value density and high packaging density.
b) high value density and low packaging density.
c) low value density and high packaging density.
d) low value density and low packaging density.
Answer: a
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Hybrid Modes of Transportation:

Package Delivery Services
UPS, FedEx, DHL,..
Capabilities Market Limitation
Speed—up to same-day Compatible with JIT and High price—traditionally
service lean limited to small, high-
Accessibility and flexible Large employer and value items (package
hours for pickup, logistics provider in EU delivery)
delivery Full-service logistics
Perfect for perishable consulting
and high-value goods,
e.g., food and drugs
Hybrid Modes of Transportation:

Intermodal Transport
Piggyback Trailer or container on rail
service flatcar
Benefits
Trainship or Truck trailer, railcar • Flexibility
containership (trainship), or container
service (containership) on ship or • Efficiency
barge; land bridge • Lower cost
Truck-plane Air transport plus surface
services transit to/from terminal
Freight truck on Truck loaded on flatbed
railroad car railcar in EU so driver can
sleep
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Warehousing
Warehousing: A Very Brief History

Previous decades … Evolved to …
Materials handling Warehousing integrated with logistics
and space efficiency strategy
ignored
Efficient use of space (better forecasting
Location and reduces need for mass storage)
numbers criteria:
Attention to optimal numbers and
perhaps one per
locations
territory
Parts storage added on supply side;
Little technology;
mixed shipments on distribution side
heavy use of
inexpensive labor Increased activity aided by new
equipment, automation, and training
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Value-Added Warehousing
Raw materials/ Finished goods DC

components Produce inventory inventories
Suppliers Customers
Raw material Finished goods DCs
warehouse warehouse
Attention to
Value-added Final assembly
packaging
examples: Coordination with
3PL specialized
transportation, packaging,
services
manufacturing, etc.
Warehousing Objectives
Objective Warehousing Contribution
Rapid Strategic placement, optimal numbers facilitate response to
response markets and order changes.
Minimize Technology and automation aid efficient handling to promote

variances predictable service.
Minimize Determine most efficient number of warehouses to reduce

inventory inventory, prevent stockouts.
Consolidation Warehouse placement, transportation interface, efficient materials

of movement handling all required for effective consolidation of shipments.
High quality Subject all aspects of warehousing to continuous improvement.
Life cycle Place warehouses for returns, repairs, etc., as well as to support
support product movement during growth, development, and maturity.
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Effects of Adding Warehouses

Pro Customer service improves. Total
Transportation costs decline Cost
Total cost
with shorter distances to travel.
Rapid delivery may improve
Inventory cost
competitive position.
Warehousing
Decentralized system allows better cost
service to small customers. Transportation
cost
Cost of lost
Con Inventory costs rise with sales
redundant functions, safety
stock. Number of Warehouses
Setup and overhead costs go
up.
Where Should Warehouses Be

Located?
Services Availability of services is most important factor.
Neighbor- Consider available space, soil support, nearness to
hood market; not restricted to warehouse districts.
Costs Services, location (urban costs more), taxes, insurance,

transportation (tradeoff with cheaper land).
Community Tax incentives, infrastructure support, trained and
inducements available workforce.
Regulations Environmental impact statements can slow
construction, inflate costs.
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Warehouse Capabilities
Warehousing activities Warehouse functions
• Receiving • Consolidation
• Prepackaging • Break-bulk and cross-dock
• Put-away • Postponement and
• Storing processing
• Order picking • Stockpiling seasonal
• Moving inventory
• Shipping • Spot stocking advance
shipments
– Packaging
– Packing and marking • Assortment
• Cycle counting • Mixing
Warehousing Capabilities:
Consolidation
Benefits
Supplier
Combining inbound or
Supplier outbound shipments for
Warehouse economies of scale to
Supplier reduce logistics costs
Plant
Supplier Reduced congestion
‫( احتقان‬at receiving dock
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Break-Bulk and Cross-Dock
Break-bulk Benefits
Customer X
Combining inbound
Plant A
Break-bulk Customer Y or outbound
warehouse
shipments for
Customer Z economies of scale
to reduce logistics
Company/ Cross-dock
Plant A Customer X costs
Company/ Distribution
Customer Y
Reduced handling
Plant B center
costs (no storage)
Company/ Customer Z
Plant C
Postponement
Benefits
Component More efficient storage
Component supplier Component
supplier supplier More accurate forecasting
Less safety stock required
Postponement
center Mass customization
Finished goods Drawback

Increased costs for hiring,
Customer A Customer B
Customer C training, and (possibly)
finishing
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Warehousing Capabilities: Stockpiling
Seasonal goods Benefits

supplier
Seasonal goods
supplier
Seasonal goods
supplier
Efficient use of production by
eliminating seasonal increase
Distribution and decrease in capacity
center Reduced chance of seasonal
stockouts
Goods released in season
Customer A Customer C Drawback

Customer B
More warehouse capacity
than required for JIT delivery
Warehousing Capabilities: Mixing
Customer W Benefits
ABC
Plant A Serves customers by
ACD
Customer X reducing their costs for
Plant B Warehouse
ABD handling, storage, etc.
Customer Y
Product D
Plant C
ABCD Increases efficient use of
warehouse space
Customer Z
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Materials-Handling Options
Goals of warehousing Limitations of equipment
Warehouse space (vertical and automation
and horizontal)
• May add cost without
increasing value
Software • Must blend with space,
Maximum value
to SC by Human labor skills, layout, etc.
IT
effectively using labor • May require expert advice
Automation and software to select
Equipment
Mechanized Systems: Forklift Trucks

Type Features and Uses
• Vehicle of choice for loading
Forklift trucks and unloading vehicles
• Lifts pallets or slipsheets to
tops of high stacks and
retrieves them
• Available in numerous
configurations and automated
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Mechanized Systems: Conveyors

Type Features and Uses Tradeoffs
Conveyors • Store and retrieve + Inexpensive operation
goods
• Load, unload some
+ Reduced labor costs
types of vehicles + Efficient use of space
• Available in + Movement of more
motorized and inventory at less cost
nonmotorized
configurations – May block access to aisles,
• Available with bar shelves
code scanners for
fast, accurate
information
Mechanized Systems: Towlines and Tow Tractors

Towlines • 4-wheeled container Efficient use of space
towed by dragline (floor
or overhead mount)
+ Can improve inventory
identification and
• Used in order selection + accuracy
• Automated models can
Expensive to automate,
use different lines
– use in complex systems
• Scanners available for
Rapid obsolescence
inventory and tracking –
+
Tow tractors with trailers • Order selection More flexible than
• Can tow multiple trailers – towlines
• Driver required Driver raises cost
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Mechanized Systems: Bridge and Wagon Cranes

Bridge/wagon • Chosen for heavy + Can lift heavier objects than
forklift or conveyer
cranes lifting
• Bridge cranes run
+ Efficient use of space
overhead from
+ Automation, remote
operation available (bridge)
movable girder
– Very expensive
• Wagon/stacker
cranes run on floor
(like forklifts)
Mechanized Systems: Carousels

Type Features and Uses Benefits
Carousels • Bins mounted on oval + Reduces walking
track/multiple levels + Stackable storage
+ Can eliminate paperwork
+
+
Pick-to-light • One type of carousel Efficient use of floor
systems • Various configurations + space
available Reduced time and human
labor for retrieval
Automation available
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Automated Systems: Automated Guided

Vehicle Systems (AGVS)

Automated • Move along floor on + Programmable for
guided tape or wire flexibility without need
vehicle • Similar in use to forklift for operator
systems
(AGVS)
and tow tractors + Maximum use of space;
• Riderless with fit in narrow aisles, reach
programmed stops high shelves
• Available with tines or
platforms
– High acquisition cost
Automated Systems: Sorting Systems
Type Features and Uses Benefits

Sorting • Generally used with + Reduced costs
systems conveyers + Increased speed
• Automate direction of
items into shipments
• Most devices
programmable for
different speeds to fit
shipment requirements
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Automated Systems: Robotics and Live Racks

Robotics • Used to build and break + Can work in dangerous
environments (noise, heat, cold,
down unit loads
hazmat)
• Recognizes product
stacking patterns + Can integrate program logic,
increasing speed, dependability,
• Transfers to/from and accuracy
conveyor belt
– High cost
Live racks • Gravity roller conveyors + Less need for lift trucks to
transfer unit loads
• When item is taken from
front, rest move down + Automatic rotation of product
(first-in, first-out)
– Low access to stock in middle
Automated Systems: Automated Storage and

Retrieval Systems

Automated • Automate both storage + Maximum storage per square
foot of floor space
storage and and retrieval
retrieval • Give access to very high + High storage and retrieval
speed with few errors
systems storage racks
(AS/RS) • Machine moves both + Reduced labor cost and
human errors
horizontally and vertically
• Pickup and dropoff
programmed at end-of-
– High cost
aisle stations
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Discussion Question
The device that gives you maximum storage space
per square foot of warehouse floor is the
a) forklift.
b) automated guided vehicle system.
c) bridge crane.
d) automated storage and retrieval
system.
Answer: d
Warehouse Management Systems (WMS)

and Other Warehousing IT
• Goal: improve warehousing quality over paper-based
WMS
• Tightly integrated with ERP
• Directs information electronically around entire SC to
EDI
compatible computers
• Production ID information coded in bars and spaces on
Bar coding
package; scanner reads directly into database
• Chip with product information; can track single item
RFID
anywhere, sending information through Internet to SC
AIDC
Automatic
• Advanced read-write incarnations‫ حُلُول‬of RFID; include
identifications and RFID plus voice transmitter for hands-free operation
data capture
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Potential Benefits of RFID Integrated in ERP
• SC partners can check the items in a

shipment without opening/unbundling.
• Inventory tracking will be continuous,
automated, and always current.
• Reduce or eliminate theft by tracking
inappropriate item movement.
• Counterfeiting will be reduced due to
unique identifier.
• Can select which data are useful to improve
operations rather than drowning in data.

Transportation and
Warehousing Tradeoffs
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Types of Carriers
Type of Description Benefits Drawbacks
Carrier
Common Perform bulk of • Availability, rates • Most economic
(public) shipping; required to supported by regulations to
serve commercial regulations consider
shippers. • Carrier assumes • Must publish
risk reasonable rates
Private Shipper’s own fleet of • Control of vehicles • Maintenance cost
vehicles for carrying • Possible cross- • Problems when
own goods (and licensing since business slows
possibly some other deregulation for • Core competence?
goods). backhaul loads • Empty backhauls
Types of Carriers (continued)

Type of Description Benefits Drawbacks
Carrier
Contract Work on contract with • Low rates • Not required to
specific clients; not • Custom services provide service
required to serve all
shippers; negotiable (not
regulated) rates.
Exempt Free from most federal • Low rates (no • Limited availability
(like the regulation (state-licensed regulation) for most products
zones in U.S.); restricted to • Adapted to special • Limited range of
around specific markets—mostly niches operation
airports)
agriculture.
99
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Owned versus Leased Warehouses

Private warehouses Public warehouses
owned by firm available for hire Contract warehouses
• Control and • Flexibility to • Potential cost

flexibility to suit scale savings with
to products/SC • Potential cost equal or better
• No markup savings from service
• Market economies of • Tailored services
presence scale (multiple • Flexibility
clients)
• Fixed cost • Expanded
• Depreciates geographic
market
Capacity Constraints: Distance

More distance means
higher cost but not
uniformly.
Price
Longer trips allow:
 Fewer starts and stops
 More cruising‫َتجْ وال‬
Distance
 Nonurban miles
(trucking). Distance/Cost
100
10/9/2016
Capacity Constraints: Volume and

Density
• Volume adds to cost, but full loads earn discounts. Higher
volume may qualify for full-load pricing, spreads cost over
more pounds.
• Denser loads may cost more in total but less per pound.
Higher density (tighter packing) spreads cost over more
pounds—good unless weight limit precludes‫ َم َن َع‬full load.
Price / Price /
weight weight
unit unit
Load weight Product density
Volume/Unit Cost Density/Unit Cost
Capacity Constraints: Stowability ‫ح َز َم‬and

َ
Handling
• Shape affects efficiency of storage—hence, cost. Odd shapes
can reduce efficient loading, use of space (stowability); e.g.,
garbage cans that don’t nest‫ يتداخل بعضه في بعض‬, finished
goods versus boxed components.
• Difficult loading and unloading adds cost. Handling is more
costly for heavy, dangerous items.
• Handling equipment may increase transportation costs (but
may be cost-effective, too).
• Packaging and grouping can ease handling, protect cargo,
provide instructions, and reduce impact on environment.
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Capacity Constraints: Economics of

Liability
Liability concerns are added costs to protect cargo against
various sorts of dangers, including:
•Susceptibility ‫قابلِيّة‬
ِ to damage (Glassware and electronics are
more vulnerable to damage than paper products.)
•Perishability for fresh food items that are vulnerable to shipping
delays and refrigeration failures
•Susceptibility to theft for valuable cargo or cargo left standing
or that is frequently transferred
•Value per pound (Shipping precious metals or antiques exposes
carrier to more risk than shipping paper products.)
Capacity Constraints: Resolving Conflicts

of Interest
Manufacturers: Large lot sizes Logistics: Reduce inventories and
for lower unit setup costs improve system responsiveness
Full truckload (TL) reduces per- Less-than-truckload (LTL) reduces

item transportation costs inventory holding costs
Lead time reduced if goods are Transportation costs reduced if orders

transported as they are made wait until ship via TL
High product variety High transportation and storage cost
High customer service Reduced costs
Optimize tradeoffs
102
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Discussion Question
Supply chain participant priorities often conflict.
Which of the following groups sets a priority on
flexible delivery times, large volumes, and
consistent materials mixes?
a) Warehouse managers
b) Retailers
c) Suppliers
d) Logistics managers
Answer: c

Customer Service
103
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Customer Service
• Customer service represents logistics’ role in
fulfilling marketing objectives.
• A customer service strategy must identify and
prioritize all activities required to fulfill
customer logistical requirements as well as—
or better than—the competition does.
• Ask: Does the cost associated with achieving
specified service performance represent a
sound investment?
Customer Service Fundamentals

• Stockout frequency
Availability • Fill rate
• Orders shipped complete
• Speed of performance
Operational • Consistency
performance • Flexibility
• Malfunction recovery
Customer • Customer expectations

satisfaction • Customer success
104
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Discussion Question
Which of the following is a best practice related to
excellent customer service?
a)Focus customer service philosophy training on just your
customer-facing employees.
b)Deliver no more and no less than what customers expect.
c)Be helpful, even patronizing ‫ ُم َدعِّم‬, when solving simple
customer problems.
d)Be prompt and responsive to customer questions,
comments, and inquiries.
Answer: d

Session 2 : Distribution Requirements Planning
(DRP)
105
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Distribution Requirements Planning (DRP)
Learning Objectives
• Describe distribution channel dependencies

• Detail “push” system functions
• Detail “pull” system functions
• Decide what to choose: reorder points or DRP?
• Define distribution requirements planning (DRP)
• Explore time phasing – the heart of DRP
• Understand the DRP planning grid
• Calculate the projected available balance (PAB) and
the DRP grid
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• Calculate net requirements and the DRP grid

• Review the DRP planned order generation
• Perform PAB and net requirements recalculation
• Explore DRP and the bill of distribution (BOD)
• Outline the DRP planning process
• Perform a full DRP calculation
Distribution Channel Dependencies
Product Flow Plant Information Flow

Decoupling Point Replenishment Point
Central
Warehouse
Local
Warehouse
Customer
107
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“Push” or “Pull”?
Push Plant Pull
Central
Warehouse
Channel Demand
Allocation Requirement
Local
Warehouse
Customer
“Push” System Functions

Aggregate Channel
Demand History
Central Inventory
Planning
Yes No
Stock Resupply
OK? Order
Review Branch
Order Points Supplier
Inventory
Shipment
Allocation
“Fair-Share”
Allocation Order
Receipt
Echelon
Shipment
108
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“Push” System Functions (cont.)

Warehouses
DCs
55%
Manufacturing
Plant
45%
60%
40%
Forecasting –
Aggregate Production 65%
Requirements Lot Size
Allocation 35%
Allocation
“Push” System Allocation - Example
15,000 x 12% = 1,800 units
1,800 x 40% = 720 units
720 x 30% = 216 units
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“Pull” System Functions
Local Facility Customer

Stock Status requirements
Stock Order point/

OK? DRP
No
Shipment
Interbranch
Resupply Order resupply order
Interbranch Distribution
shipments
Center
DRP Plant No Plant Order point
Plant Resupply Order Purchase
Stock Receipt
“Pull” System Functions (cont.)
Warehouses
DCs
Manufacturing Master
Plant Schedule
Plant OP
MRP DRP
Order Planned
Shipment Orders
Planned
Orders
Order
Shipment
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What to Choose: Order Points or DRP?
OP OP
OP
SS SS
SS
Pulled by DC 1 Pulled by DC 2 Pulled by DC 3
Impact of an order
point (OP)
distribution channel
Quantity
Regional DC
Inventory pull on a Regional DC
from three satellite
OP X DCs
OP= order point Time

SS=safety stock
Defining Distribution Requirements Planning (DRP)
The function of determining the need to replenish

inventory at branch warehouses. A time-phased order point
approach is used where the planned orders at the branch
warehouse level are “exploded” via MRP logic to become
gross requirements
What is distributiononrequirements
the supplying source. In the(DRP)?
planning case of
multilevel distribution networks, this explosion process can
continue down through the various levels of regional
warehouses (master warehouse, factory warehouse, etc.)
and become input to the master production schedule.
Demand on the supplying sources is recognized as
dependent, and standard MRP logic applies.
111
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Time Phasing – The Heart of DRP

Solving the question of when in the inventory replenishment
equation!!
Answer:
Product KL-2000-10
Lead Time/days 2
Order Quantity 50 DAILY PERIODS
On Hand Inventory/units 55 1 2 3 4 5 6
Gross Requirements 20 35 25 25 45 65
Projected Available Balance 35 0 25 0 5 40
DRP Planned Order Receipt 50 50 100
DRP Planned Order Release 50 50 100
Introduction to the DRP Grid
DRP Rows
1 2 3
Gross Requirements 100 110 125
DRP In Transit Receipts 200
Projected Available Balance 50 140 15
Net Requirements 0 0 0
DRP Planned Order Receipt 0 0 0
DRP Planned Order Release 0 200 200
112
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PAB and the DRP Grid
Answer:
Product KL-2000-10
Lead Time/days 2
On Hand Inventory/units 150 1 2 3 4 5 6 7 8 9 10
Gross Requirements 100 110 125 130 120 110 150 135 165 145
Projected Available Balance 50 140 15 -115 -235 -345 -495 -630 -795 -940
Net Requirements and the DRP Grid
Answer:
Product KL-2000-10
Lead Time/days 2
Projected Available Balance 50 140 15 -115 -235 -345 -495 -630 -795 -940
Net Requirements 0 0 0 115 235 345 495 630 795 940
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DRP Planned Order Generation

Product KL-2000-10
Lead Time/days 2
Projected Available Balance 50 140 15 85 165 55 105 170 5 60
DRP Planned Order Receipt 0 0 0 200 200 0 200 200 0 200
DRP Planned Order Release 0 200 200 0 200 200 0 200 0 0
Back schedule of DRP

planned order receipt
PAB and Net Requirements Recalculation
Product KL-2000-10
Lead Time/days 2
On Hand Inventory/units 150 1 2 3 4
PAB65 7 8 9 10
Gross Requirements 100 110 125 Net
130 Requirements
Recalculation
120 110 150 135 165 145
DRP In Transit Receipts 200 Recalculation
Projected Available Balance 50 140 15 85 165 55 105 170 5 60
DRP Planned Order Receipt 0 0 0 200 200 0 200 200 0 200
DRP Planned Order Release 0 200 200 0 200 200 0 200 0 0
114
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DRP Grid Exercise
Answer:
Product K2000-10
Lead Time/days 1
On Hand Inventory/units 125 1 2 3 4 5 6 7 8
Gross Requirements 120 120 110 95 95 110 125 135
Projected Available Balance 5 35 75 130 35 75 100 115
Net Requirements 0 0 75 20 0 75 50 35
DRP Planned Order Receipt 0 0 150 150 0 150 150 150
DRP Planned Order Release 0 150 150 0 150 150 150 0
DRP and the Bill of Distribution
ABC Electronics ABC Electronics ABC Electronics

DC 1 DC 2 DC 3
Resupply Demand
Resupply Delivery
ABC Electronics
Manufacturing Plant
115
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DRP Planning Process
DRP Generation
Determine Review Net

Gross Inventory Requirements
Requirements Balance Calculation
Total Demand OK? Quantities OK? Shortages OK?
Plan New
Orders OK?
Orders
DRP Order Release
DRP Example
Lead Time/weeks 1 DISTRIBUTION CENTER 1
Order Quantity 600
On Hand Inventory/units 240 WEEKLY PERIODS SUMMARY
PRODUCT - K200-10 1 2 3 4 5 6 7 8 WEEKLY PERIODS
Gross Requirements 210 210 210 210 210 210 210 210 PRODUCT - K200-10 1 2 3 4 5 6 7 8
DRP In Transit Receipts 600 Distribution Center 1 0 0 0 600 0 600 0 0
Projected Available Balance 30 420 210 0 390 180 570 360 Distribution Center 2 0 225 0 225 0 0 225 0
Net Requirements 0 0 0 0 210 0 30 0 Distribution Center 3 250 0 250 250 250 250 0 0
DRP Planned Order Receipt 0 0 0 0 600 0 600 0 TOTAL 250 225 250 1,075 250 850 225 0
DRP Planned Order Release 0 0 0 600 0 600 0

Order Quantity 225
On Hand Inventory/units 25 WEEKLY PERIODS
PRODUCT - K200-10 1 2 3 4 5 6 7 8 Lead Time/weeks 2 MANUFACTURING PLANT
Gross Requirements 100 100 100 100 100 100 100 100 Order Quantity 550
DRP In Transit Receipts 225 On Hand Inventory/units 25 WEEKLY PERIODS
Projected Available Balance 150 50 175 75 200 100 0 125 PRODUCT - K200-10 1 2 3 4 5 6 7 8
Gross Requirements 250 225 250 1,075 250 850 225 0
DRP Planned Order Receipt 0 0 225 0 225 0 0 225 MRP Scheduled Receipts 550
DRP Planned Order Release 0 225 0 225 0 0 225 Projected Available Balance 325 100 400 0 300 0 325 325
MRP Planned Order Receipt 0 0 550 675 550 550 550 0
MRP Planned Order Release 550 675 550 550 550 0 0 0
Order Quantity 250
On Hand Inventory/units 350 WEEKLY PERIODS
PRODUCT - K200-10 1 2 3 4 5 6 7 8
Gross Requirements 200 200 200 200 200 200 200 200
DRP In Transit Receipts
Projected Available Balance 150 200 0 50 100 150 200 0
DRP Planned Order Receipt 0 250 0 250 250 250 250 0
DRP Planned Order Release 250 0 250 250 250 250 0
116
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Session 3 : Warehouse Management
Warehouse Management
117
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Learning Objectives
• Define warehouse management

• Detail warehouse functions – material handling, product
storage, order management, and information transfer
• Describe the different types of warehouse – private,
public, contract, and in transit
• Explore the basic objectives of warehousing
• Review warehousing strategic decision components
• Use of third-party logistics (3PL) service providers in
warehousing strategy
• Detail the warehouse operational management process

• Discuss the importance of warehouse work standards
• Describe the warehouse receiving flow
• Examine the functions of warehouse stocking activities
• Illustrate the components of successful warehouse
inventory transaction management
• Outline the order picking and shipping flow
• Emphasize the importance of warehouse performance
measurements
118
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Defining Warehouse Management
The segment of an enterprise’s logistics functions

responsible for the receiving, storage, handling,
Howand shipment
would of inventories
you define warehousebeginning with
management?
supplier receipt and ending at the point of
customer consumption.
Source: Ross, David F. Distribution Planning and Control, 2nd ed. Norwell, MA: Kluwer
Academic, 2004, p. 537.
Warehouse Functions
Materials Product
Handling Storage
Warehouse
Functions
Information Order
Transfer Management
119
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Materials Handling
Materials
Loading and Unloading
Handling
Movement to and from

Storage
Sorting
Postponement
Cross-Docking
Product Storage
Storage/Put-Away
Product
Storage Stockpiling
Product Rotation
Consolidation
Bulk Breaking
Product Mixing
Spot Stocking
Production Support
120
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Order Management
Order
Customer Order Picking
Management
Production Order Picking
Traffic Management
Shipping
Information Transfer
Information
Transaction Management
Transfer
Inventory Balance Accuracy
Warehouse Capacities
121
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Types of Warehousing
The property, facility, and accompanying
Private storage and material handling equipment are
normally owned and operated by the firm
The property, facility, and storage and material

handling equipment are owned and operated
Public by a third party who rents out its services for a
fee on a short-term basis
Similar to a public warehouse except that the
Contract third party and the renter seek to engage in a
long-term contractual relationship
Storage in This is a special form of warehousing where

goods are held in a transportation mode, such
transit as truck or railcar until needed
Warehouse Type Exercise

Answer: Warehouse Type
Attribute Private Public Contract In Transit
Low/ Low/
Cost High Low
Medium Medium
High customer service High Medium Medium Low
High performance warehouse High Low Medium Low
Level of control High Low Medium Low
Company image High Low Low Low
Low/
Communications High Medium Low
Medium
Facility flexibility Low High Medium High
Medium/ Medium/
Technologies Medium Low
High High
Transportation costs High Low Low Low
Customer service requirements High Medium High Low
122
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Basic Objectives of Warehousing

Maximize the effective use of space
Maximize the efficient use of warehouse equipment
What are the objectives of warehousing?

Maximize the efficient use of labor
Maximize the accessibility of all stock inventories
Maximize on-time delivery at the lowest shipping cost
Maximize the protection of all items from damage,

spoilage, obsolescence, and theft
Source: James A. Tompkins and Jerry D. Smith, eds. The Warehouse Management Handbook. New
York: McGraw-Hill, 1988, p. 6.
Strategic Decision Components

Location Optimization
Transportation Cost
Inventory Carrying Cost
Warehousing and Handling Costs
Warehouse
Network Service Capability
Strategy
Operational Flexibility
Industry Synergies
Technology Applications
Total System Cost
123
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Total System Cost Graph
Total Network
Total Cost
Transportation
Inventory
Facility
Materials Handling
Number of Warehouses
Use of Third-Party Logistics (3PL)

Financial settlement, global trade, consulting,
Logistics logistics management, warehouse location, and
supplier management
Storage, warehouse management, pick/pack
Warehousing and assembly, cross-docking, fulfillment,
vendor-managed inventories
Small package delivery, freight, air cargo,
Transportation intermodal, ocean, rail, bulk product, fleet
acquisition assistance, and leasing
Special material handling, special delivery,
Special Services import/export/customs, reverse logistics, and
marketing and customer management
Leased services and equipment for EDI, Web-
Networking
enablement, and warehouse (WMS) and
Technologies
transportation (TMS) management systems
124
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Warehouse Management Process
Warehouse Strategy
Order
Work Standards Receiving and
Picking and
Stocking
Shipping
Capacities OK? Inventories OK? Timeliness OK?
Results OK? Performance

Measurement
Warehouse Performance
Importance of Warehouse Standards

Resource Determining the capacity of labor, equipment,
Availability and facilities
Matching of resource availability with order

Scheduling picking, put-away, and product movement
requirements
Problem Exposing efficiency and utilization problems

Identification in the warehouse
Continuous Establishing foundations for warehouse

Improvement operational improvement
Calculating the exact content of warehouse

Costing operations costs
125
10/9/2016
Warehouse Work Standards – Exercise

Bin picker data:
Number of shifts: 2 shifts
Number of pickers on team: 6 pickers
Standard hours available: 7 hrs
Standard lines picked per hour per picker: 60 lines
Demonstrated lines picked per day: 5,200
Lines picked per day efficiency

1. Standard linesper
Standard lines perday
day= 2=shifts x 6 pickers x 7 available hours/per
shift x 60 lines = 5,040 lines per day.
2. Efficiency =
2. Efficiency = (5,200 / 5,040) x 100 = 103.1%
Receiving Flow
Delivery Planning
Product Delivery
and Unloading
Count, Inspect,
Process Documents Packing List
Bill of Lading
Labels
Disposition
Return to QC To
Scrap
Supplier Inspection Stock
MRB
126
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Warehouse Stocking Functions
Receiving put-away
Product movement between locations
Location servicing
Name some critical warehouse stocking functions
Product balance count verification
Transaction/move reporting
Product staging for order picking
Stock rotation and lot control
Three P’s of Inventory Control
127
10/9/2016
Transaction Management
Accuracy Is the Key!
WIP Scrap
WIP Issue Finished Interbranch
Pick Issue
WIP Goods Transfer
Receipt
Internal
Receipt Put Away Adjustment Shipment
Move
Order
Returns
Inventory Record
Order Picking Options

One order picker fills each line on an
Discrete individual order
Order lines are combined for picking

Batch within a particular storage area in the
warehouse
Order lines are subdivided for

Zone individual picking within a particular
storage area in the warehouse
Orders combined for picking based on

Wave a common criteria such as common
carrier, destination, or shift time
128
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Order Shipping Flow
Carrier Selection
Order Picking Order Staging
Packaging/
Packing
Packing List
Order Posting Bill of Lading
Labels
Order Loading
Documentation
Distribution
Warehouse Performance
Volume of product storage and retrieval
Throughput transactions completed in a given unit of time
Order Picking Ratio of actual picking output against the

Accuracy picking standard
Shipping Ratio of actual shipping output against the

Accuracy standard
Inventory Accuracy of actual inventory balances against

Balance the official balance record
Accuracy
Storage Utilization of space in the warehouse

Utilization
129
10/9/2016

Session 4 : Packaging and Materials Handling
Principles of Distribution and Logistics
Packaging and Materials Handling
130
10/9/2016
Learning Objectives
• Define warehouse design and layout objectives

• Determine warehouse size and capacity
• Describe basic warehouse layouts
• Understand warehouse layout development
• Detail warehouse design layout principles
• List the key principles of materials handling
• Classify the types of storage systems
• Outline large-item or large-volume product storage
• Review small-item or low-volume product storage

• Review automated storage systems
• Discuss stocking inventory in warehouse locations
• Describe dock materials handling equipment
• Describe mobile materials handling equipment
• Define the role of packaging and unitization
• List the key drivers of warehouse automation
• Detail the components of warehouse automation
131
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Warehouse Design and Layout Objectives

The efficient and most cost-effective use of
Space Utilization warehouse storage space
The efficient and most cost-effective use of

Labor/Equipment
warehouse labor and materials handling
Utilization
equipment
The most economical storage in relation to
Optimal Economical the cost of equipment, use of space,
Storage damage to material, and utilization of labor
The clean and orderly use of warehouse
Good Housekeeping equipment that minimizes damage and
facilitates warehouse operations
Ability of warehouse operations to meet
Warehouse
changing storage and materials handling
Flexibility
requirements as competitive needs change
Warehouse Size and Capacity

The square footage of space (dimensions) the
Size warehouse occupies on the physical site
The cubic footage of usable space (capacity) the

Capacity warehouse has available
100 ft.
100 ft.
25 ft. 50 ft.
Floor Space = 10,000 Sq. Ft. Floor Space = 10,000 Sq. Ft .

Capacity = 250,000 Cubic Ft. Capacity = 500,000 Cubic Ft.
132
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Basic Warehouse Layouts
Inspection
Receiving
Staging
Office
Storage and Picking
Packing Loading/
Manufacturing
Shipping
Basic Warehouse Layouts – (cont.)
Slow Movers
Semi-
Large Zone 2 Automated
Racks Receive & Ship Storage &
Retrieval
ABC Storage Medium Movers
Mixed
LayoutStorage
-
Mode
Distribution
- Distribution Zone 1 Zone 3
Receive & Ship Receive & Ship
Bins Fast Movers
Small
& Racks Automated Storage &
Drawers Retrieval
Dock and Shipping Area
133
10/9/2016
Warehouse Layout Development

Detailed Project Design a detailed project plan and schedule
Plan and Schedule
Define Layout Define and quantify the objectives of the

Objectives warehouse layout project
Detail the storage data regarding products,
Gather Data capacities of storage equipment, and other
factors
Develop Layout Arrange multiple alternatives for storage
Alternatives equipment and materials handling functions
Review layout alternatives and decide on a
Evaluate Layout final layout
Implement Layout Begin the warehouse implementation
Warehouse Layout and Design Principles
Optimize Storage Storage space should be calculated

based on the cubic capacity of the
Cube
storage area
The appropriate storage and materials

Optimize Equipment handling equipment should be selected
Move Goods in a Reducing travel time and distance

Straight Line increases efficiency and reduces cost
Minimize Aisle Aisle space should be minimized

Space because it cannot be used for storage
134
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Principles of Materials Handling
Material Flow
Simplification
Gravity
Principles Space Utilization
Equipment Analysis
Standardization
Adaptability
Source: Coyle, John J., et al., Supply Chain Management: A Logistics
Perspective, 8th ed. Mason, OH: South-Western Cengage Learning, 2009, p.
501.
Types of Storage Systems
Warehouse Large-Item or Large-

Storage Volume Product Storage
Small-Item or Low-Volume
Product Storage
Automated Storage
Systems
135
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Large-Item or Large-Volume Storage
Large-Item/Large- Open Floor Storage

Volume Storage
Pallet Racks
Drive-In/Double-Deep Pallet
Racks
Storage Racks
Cantilever Racks
Flow Racks
Specialty Racks
Small-Item or Low-Volume Storage
Small-Item/Low
Bin Shelving
Volume Storage
Modular Storage Drawers
FIGURE 11.24 Small parts shelving.
136
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Automated Storage Systems
Automated
Carousels
Storage Systems
Movable-Aisle Systems
Miniload Storage and

Retrieval Systems (AS/RS)
Unit-Load Automated
Storage and Retrieval
Systems (AS/RS)
FIGURE 11.25 Horizontal carousel.
Stocking Inventory in Warehouse Locations

Grouping items together using functional
Basic Systems characteristics or using working stock and
reserve
Fixed Location Inventory is assigned a permanent

location
Random Inventory is assigned to the next available

Storage storage area randomly
Point-of-Use Inventory is stored at the location where it

Storage is being used
Central Inventory is stored in a single location

Storage
137
10/9/2016
Warehouse Storage Exercise
Storage Type Products
A Open floor storage C Lights - unit of measure (UM): EA
B Pallet racks D Steel Bar - UM: EA
C Storage racks A Garbage Dumpster – UM: EA
D Cantilever racks B Surface Fan – UM: EA
E Flow racks F Cart Casters – UM: EA

G Steel Washers – UM: Box of 6
F Specialty racks
E Batteries – UM: Box of 6
G Bin Shelving
F Wood Dowel – UM: EA
Dock Equipment
Door seal
Dock Door
Systems Bumpers
Dock Leveler
Forklifts
Pallets
138
10/9/2016
Dock Equipment (cont.)

Mobile
Cranes
Jib
Bridge
Conveyors
Bulk
Belt
Roller
Mobile Materials Handling Equipment
Manual Lift Trucks
Walkie Trucks
Reach Trucks
139
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Mobile Materials Handling Equipment (cont.)
Turret or Side-
Loader Truck
Order Picker
Automated Guided
Vehicle (AGV)
Materials Handling Equipment Exercise

Storage Equipment Truck Off-loading Order Picking Storage/Retrieval
Manual lift trucks YES YES
Pallet truck YES YES
Walkies YES YES
Walkie stackers YES
Counterbalance (forklift) YES
Straddle reach YES
Turret trucks YES YES
Double-deep reach YES
Side loaders YES YES
Order pickers YES
Automated guided vehicles (AGV) YES YES
Cranes YES
AS/RS system YES YES
Conveyors YES YES
140
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Role of Packaging
Protection from damage from
Protection normal functions of warehouse and
distribution
Ability to resist leakage, spilling,

Containment tampering, handling, and theft
Reference to contents, control

Information markings, brand image, and
identification.
Efficiency of handling, storing,

Utility distributing, and opening and
closing
Unitization
Lower handling costs

Labor savings
Transportation savings
What is product unitization?
Security
Minimize warehouse damage
Minimize transit damage
Increased inventory control
Increased customer service
141
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Unitization Principles
• The unit load size should fit all modes of materials handling
equipment and transportation
• The unit load should be designed to optimize space utilization
• Unit load height should optimize the cube utilization of both
warehouse space and transportation equipment
• Stacking patterns impact the dynamics of load stability and
potential for damage
• The weight of the unit load must be in alignment with
materials handling systems
• Packaging and unitization equipment should be
reusable/returnable or recyclable
Unitization Examples
Boxes/Crates/
Bundles
Pallets
Barrels
Steel Baskets
Containers
142
10/9/2016
Warehouse Automation – Key Drivers

Application of lean thinking and practices to
Lean Warehouse
warehouse management
Sustainable Application and adoption of sustainable

Warehouse practices in warehouse operations
Horizontal Increased collaboration between the

Collaboration warehouse and other business functions
Integration of warehouse management
WMS and TMS
systems (WMS) and transportation
Integration
management systems (TMS)
Web-enabled Application of web-enabled business
Warehouse functions to warehousing
Labor Effective management of warehouse labor

through labor management and scheduling
Management systems
Warehouse Automation Components
Bar Code/ RF Wireless/ AS/RS

Scanning RFID Systems
Warehouse Automated
Warehouse
Management Guided
Automation
Systems Vehicles
Automated Automated Conveyors/

Carousels Picking Robotics
143
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Warehouse Management System (WMS)

- ASN planning - Bar coding
- RFID capable - Demand forecasting - In-bound track - Location capacity mgmt
- VMI - Multi-channel plan - Delivery appoint - Palletizing - Cycle count
- Damage mgmt - Financial planning scheduling - Zone & slotting - Transfers
- Salvage mgmt - Item planning - PO Verify - Random/directed - Space reservation
- Multi-currency - Assortment planning - Sup compliance put-away - Packaging
- Decision support - Promotion planning - Returns - Off-site storage - Utilization optim.
- Supplier/Hub mgmt - Store clustering - Inspection support - Yard management
Put Location
General Planning/ Put-
Receiving & Storage
Functions Forecasting Away
Mgmt.
Warehouse Management System

Labeling DC
Order Labor
Picking & Floor Shipping Equipment
Processing Mgmt.
Ready Support
- Host download - Pick list print - UPC tagging - Ship planning - Performance - Auto sortation
- Order checking - Manual/directed - Container - Pallet management - Conveyors
- Order batching picking marking sequence - Team perform - TCP, UDP, FTF
- Allocation - Pallet, case/ item - ASN - Load planning management interface
- Auto-replenish. picking. - Special packing - Pallet layering - Work area - RF units
- Auto-replenish. - Wave picking - Custom labeling. - LT/LTL measurement - Speech recog..
by store - Zone picking - International linkage. - Labor - Equipment/
- Carton/pallet ship - Trailer mgmt. scheduling vehicle maint.
select documentation - UPS on-line - Time standards management
- Assembly/kitting - Bar code/RFID development
- Pick-to-light

Session 5 : Lean Manufacturing Workshop
Series - 5S
144
10/9/2016
Workshop Objectives
• Learn the benefits of 5 S
• Understand the definition and meaning of
5 Ss
• Learn the proper strategy for implementing
a 5 S program
• Conduct 5 S exercises
• Apply 5 S principles at work
289
Workshop Topics
• Introduction to Lean Manufacturing
• Goal: Learn 5 S by Doing
• Definition of the 5 Ss
• Phase 1 of 5 S: Sort
• Exercise 1 – Tackle disorderliness and Lack of Cleanliness and
Sorting in the Shop by Targeting Unneeded and Excess Items
• Discuss Sorting Observations/Opportunities for Implementing 5 S
Projects
• Auditing a Shop for Sort
• Phase 2 of 5 S: Set in Order
290
145
10/9/2016
Workshop Topics (continued)

• Exercise 2 Develop a New Layout for the Shop to Include
Material, Equipment and Fixtures, and Location Indicators
• Discuss Set in Order Observations/Opportunities for
Implementing 5 S Projects
• Auditing Set in Order
• Phase 3 of 5 S: Shine/Inspect
• Exercise 3 Identify and Develop a Plan for Shop Cleaning and
Equipment Inspection/Maintenance
• Auditing Shine/Inspect
• Phase 4 of 5 S: Standardize
291
Workshop Topics (continued)

• Auditing Standardize
• Exercise 4 Identify and Develop a Plan on How to Standardize
the 5 S Program within the Plant
• Discuss Standardize Observations/Opportunities for
• Phase 5 of 5 S: Sustain
• Auditing Sustain
• Exercise 5 Identify and Develop a Plan on How the Plant Can
Sustain the 5 S Program
• Discuss Sustain Observations/Opportunities for Implementing 5
S Projects
292
146
10/9/2016
What Is 5 S
5 Japanese Words
– Seiri Sort (Housekeeping)
– Seiton Set in Order (Workplace Organization)
– Seiso Shine (Cleanup)
– Seiketsu Standardize (Keep Cleanliness)
– Shitsuke Sustain (Discipline)
293
Benefits of 5 S
For the Employees:

1. A more pleasant work environment
2. More satisfying jobs
3. Process that makes the job easier
4. A process that makes sense
5. Pride in the workplace
6. Employee and customer respect
7. Positive mental attitude
5 S creates a better place to work

294
147
10/9/2016
Benefits of 5 S
For the company: Higher quality, lower costs, easier

maintenance, greater customer satisfaction, and
higher profitability
1. Sales
2. Savings
3. Safety
4. Standardization
5. Satisfaction
FOUNDATION FOR OTHER CONTINUOUS

IMPROVEMENT PROCESSES 295
Benefits of 5 S
Percentage of Benefits Achieved

0 25 50 75 100
LeadTime Reduction
Productivity Increase
WIP Reduction
Quality Improvement
Space Utilization
Flexibility Skill Enhancement Visual Management

296
© APICS, 2003
148
10/9/2016
Expected Measurable Results

• Cut in floor space 60 %
• Cut in flow distance 80 %
• Cut in rack storage 68 %
• Cut in number of forklifts 45 %
• Cut in machine changeover time 62 %
• Cut in nonconformance in assembly 96 %
• Increase in test yields 50 %
• Reduce late deliveries to 0%
297
Exercise 1
• Break into groups of 4 or 5
• Elect a team leader, recorder, gatekeeper, and timer
• Ask each group to list examples of disorderliness and lack of
cleanliness that make the work less efficient, safe, and
pleasant
• Develop a strategy and criteria for targeting unneeded and
excess items
• Go to your assigned shop area
• Identify and tag all unneeded and excess items in your
assigned shop
• Return with your summary of actions in 30 minutes
298
149
10/9/2016
Before: Storage Room
299
© APICS, 2003
300
© APICS, 2003
150
10/9/2016
301
© APICS, 2003
302
© APICS, 2003
151
10/9/2016
303
© APICS, 2003
304
© APICS, 2003
152
10/9/2016
Safety
Outlet covers and

switches in storage
room were
unprotected.
305
© APICS, 2003
The First S: Sort

• Separate needed from unneeded items.
• Leave only the bare essentials.
1. Remove unneeded items from the work area (red tag).
2. Remove all excess items from the work area.
3. Is it needed, in what quantities, and where should it be located?
• Hold excess items within the shop storage area for 14 days or less.
• Assign a person to organize and manage the shop storage area.
• Assign a person to organize and manage the consolidated storage area.
• Organize working/storage area, disposing of all items in red tag area in a
predetermined time.
Organization reduces work flow problems, increases product

quality and productivity, and improves communication.
306
153
10/9/2016
Red Tag System

• Start the red tag process within a designated area
(shop, storage area, warehouse, and so forth)
• Identify the red tag targets
• Set red tag criteria
• Make red tags
• Attach red tags
• Evaluate red tag items
• Document the results of the red tagged items
307
Area: RED TAG Tag #:
Category (Circle):
Supplies
Office Materials WIP Tools
Furniture Raw Material Equipment
Books/Magazines/Files Finished Goods Other: _____________________
Date Tagged: Tagged By:
Item: Quantity:
Reason:
Disposition (Circle):
Discard Sell
Store in Dept. Transfer
LongTerm Storage Other: ____________________
Action Taken: Date:
Perforated Line
Area: RED TAG LOCATOR Tag #:
308
© APICS, 2003
154
10/9/2016
Red Tag Items

Tag # Description
6365 (2) file cabinets (4 drawer)
6321 (3) 35mm slide projectors
6315 various cables/connectors (Is dept?)
6356 blueprint file drawer
6312 (3) black plastic shell cases
6308 custom case
6317 (3) shipping caseswood
6318 file folders
6320 (3) ring binders
6313 (3) briefcases
6308 dozens of 35mm slide carousels
6315 various glass photo frames
6311 (2) step ladders (for tool crib?)
6310 dry erase easel
6319 plastic tote box
6358 generator
6359 file cabinet
6360 file cabinet
6361 shelves
6362 shelves
6363 desk
6364 cmm machine
6345 bench
6346 bench
6347 cabinet
6348 cabinet
6349 cabinet
6350 cabinet
6351 cabinet
6352 cabinet
6366 chairs
6367 chairs
6322 cmm machine
309
© APICS, 2003
Sort 5 S Audit
Workshop name:
Completed by:
5 S Audit Sheet
Previous
(for workshops) Score: Date:
Score:
Score
1 S No Check item Description
0 1 2 3 4
Does the inventory or in-
1 Materials or parts process inventory include any
unneeded materials or parts?
Are there any unused
2 Machines or equipment machines or other equipment
around?
Are there any unused jigs,
SORT
3 Jigs, tools, or dies tools, dies, or similar items

around?
Is it obvious which items have
4 Visual control been marked as
unnecessary?
Has establishing the 5 Ss left
5 Written standards
behind any useless standard?
Sub Total
0=Very Bad 1=Bad 2= Average 3=Good 4=Very Good

310
© APICS, 2003
155
10/9/2016
Exercise 2
• Break into groups of 4 or 5
• Elect a team leader, recorder, gatekeeper, timer, and area
representative
• Develop a strategy and criteria for relaying out the area and
putting everything in its place
• Go to your assigned area
• Develop a new layout for the area to include material, tools
and fixtures, and location indicators
• Return with your relayout and relocation of equipment in the
area and summary of actions in 30 minutes
311
The Second S: Set in Order
Objectives
– Arrange needed items so they can be easily
retrieved, used, and put away.
– Get rid of waste in production and
production support activities.
– Use first in, first out (FIFO).
– Save space and time.
312
156
10/9/2016
Set in Order Guidelines

• Establish place for everything and everything in its place.
• Place parts, tools, and instructional manuals close to the point
of use for “motion improvement.”
• Store similar items together on the same row.
• Store different items in different rows.
• Color code to quickly identify items.
• Clearly label each item and its storage area.
• Use specially designed carts to organize tools, fixtures, jigs,
and measuring devices that are needed for each machine,
color coded for each job.
313
Set in Order Review Work Sequence
• Observe sequence of tasks each worker performs.

• Break operations into observable elements.
• Identify valueadded versus nonvalueadded elements.
• Minimize nonvalueadded operations.
• Consider machine capacity, cycle times, and
changeover times.
ValueStream Mapping
314
157
10/9/2016
Old Layout
OUT 6
Cleaning
Deburring
2 1 IN
Grinder #2 Grinder #1 Loader
Heat 4
Roller
Treatment
315
© APICS, 2003
New Layout
3
4
Roller
Heat
Grinder #2 Treatment
2 5
Grinder #1 Cleaning
1 6
Loader Deburring
IN OUT 316
© APICS, 2003
158
10/9/2016
Identifying Locations
• Signboard strategy
• Painting strategy
• Future state map
• Colorcoding strategy
• Outlining strategy
317
Shipping
1. All crates are numbered; floor space is numbered to match
(and footprint marked in tape on floor).
2. Orders to shipping specifies:
• Crate numbers to be shipped (along with dimensions, weights,
customs value, and BOL class codes)
• Delivery address and dropdead arrival date
• Carrier.
3. Shipping creates outbound, subsequent, or inbound bills of
lading and customs forms for booth materials.
4. Shipping picks up crates with forklift.
5. Shipping calls for specific carrier (not a default less than truck
load) and crates go to specific customer.
318
159
10/9/2016
52 Wastes
No canisters for chemicals Assorted piping on floor
Location for barrels not marked Spare valves misplaced
Poor lighting in boiler room Spare motor not labeled
No floor layout Blueprints not sorted
No red tag area Excess cabinet emptied
No lamp disposal area Unknown shelving in area
Moving boxes to get at right box Gate not secured
Spare parts for absorber Cleared aisle
Excess barrels of antifreeze No designated aisles
No lighting in marketing storage No stop for rail
Limited shelving Unused cabinets removed
Safety hazards Unused fan removed
No designated trash locations Shipping product confusion
Obsolete materials Literature for shows unorganized
No floor plan for marketing storage No procedure for excess material
Long time to find material Lack of inventory of cases
Not knowing where material is Show material not organized
Waste of walk time Excess material being shipped
Unused equipment Wrong material being shipped
No visual controls Cost of reshipments
Broken locks Labor costs in handling
Cabinet broken Marketing needed for direction
No organized shelves Waiting time
No chemical waste containers Waiting for marketing direction
No chemical waste labeling Lack of communication, process documentation
No drum identification
Marketing items unorganized
319
© APICS, 2003
Set in Order 5 S Audit
Workshop name: Completed by:

5 S Audit Sheet
Previous
Score:
Score
2S No Check item Description
0 1 2 3 4
Are shelves and other storage areas
Location
6 marked with location indicators and
Indicators
addresses?
Do the shelves have signboards
7 Item Indicators
showing which items go where?
SET LOCATIONS
Quantity Are the maximum and minimum

8
Indicators allowable quantities indicated?
Demarcation Are white lines or other markers
of walkways used to clearly indicate walkways
9 and in-process and storage areas?
inventory
areas
Are jigs and tools arranged more
10 Jigs and tools rationally to facilitate picking them up
and returning them?
Sub Total

320
© APICS, 2003
160
10/9/2016
After: Storage Room
321
© APICS, 2003
After: Storage Room
322
© APICS, 2003
161
10/9/2016
After: Storage Room
323
© APICS, 2003
After: Storage Room
324
© APICS, 2003
162
10/9/2016
After: Storage Room
325
© APICS, 2003
After: Storage Room
326
© APICS, 2003
163
10/9/2016
After: Storage Room
327
© APICS, 2003
Safety
Installed switch
plate covers and
outlet covers
328
© APICS, 2003
164
10/9/2016
Safety
Replaced burned
out fluorescent
bulbs
329
© APICS, 2003
Safety
Placed heavier
objects on middle
and lower
shelves
330
© APICS, 2003
165
10/9/2016
Visual Controls
• All shelving
marked with
specific items
placed there.
• Boxes/items
have
matching
labels.
331
© APICS, 2003
Visual Controls
Floors painted to
designate aisles and
placement of crates
332
© APICS, 2003
166
10/9/2016
Exercise 3
• Break into groups of 4 or 5.
• Elect a team leader, recorder, gatekeeper, timer, and area
representative.
• Develop targets and methods for cleaning and
maintenance.
• Go out into your assigned shop area.
• Identify and develop a plan for shop cleaning and
equipment inspection/maintenance.
• Return with your summary of actions in 30 minutes.
333
The Third S: Shine/Inspect
Objectives
– Cleanliness leads to a more comfortable
and safe work place
– Cleanliness leads to greater visibility to
reduce search time
– Cleanliness ensures a higher quality of
work and products
334
167
10/9/2016
Shine Guidelines
• Operators clean their own equipment and working areas
and perform basic preventive maintenance
• Keep everything clean in a constant state of readiness
• Investigate the causes of dirtiness and implement a plan to
eliminate the sources
• Use dustcollecting covers or devices to prevent dirt
accumulating on machines and working surfaces
• Paint for “deep cleaning”
335
Daily/Shift Cleaning
• Sweep and wash the floors

• Clean in, under, and around equipment and
furniture
• Eliminate all trash from the workplace
• Touch up scratches with paint
“Clean so that you would be willing to eat off the

floors and equipment!”
336
168
10/9/2016
Steps in Clean/Inspect
• Decide on cleaning/inspection targets
• Determine cleaning/inspection methods
• Deep clean with paint
337
5 S Cleanliness/Inspection Checklist
5 S Cleanliness/Inspection Checklist
Main Response
Mechanism Point Clean Lubricate Replace Restore
1. Oil inlets 1 Can the oil level indicators be clearly seen ? X

2 Are there any cracks in the oil tank ? X
3 Is the bottom of the oil tank dirty ? X
4 Is the oil in the tank dirty ? X
2. Tank
5 Is there any oil leakage from the tank or pipe joint ? X X
6
338
© APICS, 2003
169
10/9/2016
Shine/Inspect 5 S Audit

5 S Audit Sheet
(for workshops) Previous
Score: Date:
Score:
Score
0 1 2 3 4
Are floors kept shiny clean and free of
11 Floors
waste, water, and oil?
SHINE AND SWEEP
Are the machine wiped clean often and

12 Machines
kept free of shavings, chips, and oil?
Cleaning and Is equipment inspection combined with
13
checking equipment maintenance?
Cleaning Is there a person responsible for
14
responsibilities overseeing cleaning operations?
Habitual Do operators habitually sweep floors
15
cleanliness and wipe equipment without being told?
Sub Total
339
© APICS, 2003
Exercise 4
• Break into groups of 4 or 5.

• Elect a team leader, recorder, gatekeeper,
timer, and area representative.
• Each team should address how the plant
should standardize the 5 S program.
• Return in 15 minutes with your summary and
present.
340
170
10/9/2016
The Fourth S: Standardize
Objectives
– Properly maintain the first 3 Ss as a habit
– Document cleaning/inspection tasks (5minute
shine)
– Implement cleaning/inspection checklist of
maintenance activities on periodic schedule
– Take it to the next level, prevention!
341
Standardization Guidelines
• Assign responsibility for activities regarding
maintaining first 5 S conditions.
• Integrate 3 S documented procedures for
maintenance tasks into regular assigned work
duties.
Improvements made in the first three steps do not

last but revert to prior conditions.
342
171
10/9/2016
Three Legs of the Standardization Stool
Standardize
Sort
Set in Order
343
© APICS, 2003
Standardize Tools
• 5 S locations
• 5 S assignment map and 5 S schedule
• 5 S job cycle charts listing each 5 S job to be
done
• Visual 5 S (normal versus abnormal
overproduction, disorder, and
contamination conditions)
344
172
10/9/2016
5 S Job Cycle Chart

Div./Dept./Section Prod. Div.
5 S Job Cycle Chart Entered by: Date: JOB CYCLE

No. 5 S Job Sort Set in order Shine Standardize Sustain A B C D E F
1 Red-tag strategy (occasional, companywide) O O
2 Red-tag strategy (repeated) O O
3 Place indicators (check or make) O O
4 Item indicators (check or make) O O
5 Amount indicators (check or make) O O
6 Sweep around line O O
7 Sweep within line O O
8 Sweep around worktable O O
9 Sweep on and under worktable O O
10 Sweep work areas and walkways O O
Job Cycle Code

A is Continuously
B is Daily (mornings)
C is Daily (evenings)
D is Weekly
E is Monthly
F is Occasionally
345
© APICS, 2003
Organization
(Prevents retention of unneeded items)
Ways to prevent generating

Advanced level of
unneeded items Standardized Cleanup
Because they are not needed.
3S conditions are easily maintained

Why throw these things away?
Throw away unneeded items. Basic level of Standardized Cleanup

Making the 3Ss a habit
Unneeded items accumulate Level before Standardized Cleanup

everywhere. Without the 3Ss.
346
© APICS, 2003
173
10/9/2016
Orderliness
(Prevents disorderly arrangement of items)
Ways to prevent backsliding Advanced level of

in orderliness conditions Standardized Cleanup
Because they tend to revert to
their previous level
3S conditions are easily maintained

Why do 3S conditions deteriorate?
Arrange things in an orderly fashion Basic level of Standardized Cleanup

No one knows exactly where to find things. Level before Standardized Cleanup
Without the 3Ss.
347
© APICS, 2003
Cleanliness
(Prevents things from getting dirty)
Ways to prevent
Advanced level of
contamination Standardized Cleanup
Because they get dirty.
3S conditions are
easily maintained
Why sweep the floor?
Clean dirty places. Basic level of Standardized Cleanup

The workplace is dirty and nobody cares. Level before Standardized Cleanup
Without the 3Ss.
348
© APICS, 2003
174
10/9/2016
Prevention: Taking It to the Next Level
• Prevent unneeded items from accumulating

Prevent unneeded items from entering the workplace.
• Prevent items from having to be put back

Make it difficult or impossible to put items in the wrong
place.
• The 5 Whys and 1 How (5W1H) Approach

Finding the underlying root cause and how to fix it.
349
Prevention: Taking It to the Next Level
• Suspend tooling above work area

• Incorporate jigs, tools, and measuring devices
into the process and store where used
• Eliminate tools by tool unification, tool
substitution, and method substitution
• Prevent work items from getting contaminated
(dirt, oil, and so forth)
350
175
10/9/2016
Standardization 5 S Audit

5 S Audit Sheet
Previous
Score:
Score
0 1 2 3 4
Are improvement memos regularly being
16 Improvement memos
generated?
SHINE AND SWEEP
17 Improvement ideas Are improvement ideas being acted on?
Are standard procedures clear,

18 Key procedures
documented, and actively used?
Are the future standards being
19 Improvement plan considered with a clear improvement plan
for the area?
Are the first 3 Ss (sort, set locations, and
20 The first 3 Ss
shine) being maintained?
Sub Total

351
© APICS, 2003
Exercise 5
• Break into groups of 4 to 5.
• Elect a team leader, recorder, gatekeeper, timer, and
area representative.
• Each team should address how the plant should
sustain the 5 S program.
• Each team should summarize what the team
members have learned about 5 S.
• Return within 15 minutes with the summary and
present.
352
176
10/9/2016
The Fifth S: Sustain

Objective: Sustain 5 S
• Conditions necessary to sustain
– Awareness (understand 5 S)
– Time (time committed in work schedule)
– Structure (how and when 5 S tasks performed)
– Support (management leadership, resources, and
acknowledgment)
– Rewards and recognition
– Satisfaction and excitement
353
Tools to Sustain 5 S
• 5 S slogans
• 5 S posters
• 5 S photo exhibits and storyboards
• 5 S newsletters
• 5 S maps
• 5 S pocket manuals
• 5 S shop and department tours
• 5 S months
354
177
10/9/2016
Sustain 5 S Audit
Workshop name:
Completed by:
5 S Audit Sheet
Previous
(for workshops)Score: Date:
Score:
Score
0 1 2 3 4
Is everyone adequately trained in
21 Training
standard procedure?
Are tools and parts being stored
22 Tools and parts
correctly?
SUSTAIN
23 Stock controls Are stock controls being adhered to?

Are procedures up to date and regularly
24 Procedures
reviewed?
Are activity boards up to date and
25 Activity boards
regularly reviewed?
Sub Total
355
© APICS, 2003
SelfAssessment Star
Area: ___________
SORT Date: ___________
Separates the necessary
from the unnecessary.
5 Unnecessary items are to
be removed from the
Level workplace
4
Level 3
Level 2
SET IN ORDER Level 1
SHINE
Provides specific, Enforces “CLEAN AS
SORTING
easy to YOU GO”
understand directions, Visual monitor of the
methods, process
and procedures 5S Keeps everything neat
LEVELS OF and clean
EXCELLENCE
ATTAINED LEVELS
1 2 3 4 5
SUSTAIN
Expects each individual to
assume ownership of
STANDARDIZE
Identifies the best processes
housekeeping in their to maintain work areas and
work area ensures consistency
356
© APICS, 2003
178
10/9/2016
5 S Wheel
SORT (Organization) SET IN ORDER

(Orderliness)
Clearly distinguish Keep needed items
needed and unneeded in the correct place
items and eliminate to allow for easy
the latter and immediate
SUSTAIN retrieval
(Discipline)
Make a habit of
maintaining
This is the condition established
Keep the
we support when procedures
workshop swept
we maintain the first
and clean
three pillars
SHINE
STANDARDIZE
(Cleanliness)
(Standardized
Cleanup)
357 357
© APICS, 2003
Workshop Topics Review

• Introduction to Lean Manufacturing
• Goal: Learn 5 S by Doing
• Definition of the 5 Ss
• Phase 1 of 5 S: Sort
• Exercise 1 – Tackle disorderliness and Lack of Cleanliness and
Sorting in the Shop by Targeting Unneeded and Excess Items
• Discuss Sorting Observations/Opportunities for Implementing 5 S
Projects
• Auditing a Shop for Sort
• Phase 2 of 5 S: Set in Order
358
179
10/9/2016
Workshop Topics Review (continued)

• Exercise 2 Develop a New Layout for the Shop to Include Material,
Equipment and Fixtures, and Location Indicators
• Discuss Set in Order Observations/Opportunities for Implementing
5 S Projects
• Auditing Set in Order
• Phase 3 of 5 S: Shine/Inspect
• Exercise 3 Identify and Develop a Plan for Shop Cleaning and
Equipment Inspection/Maintenance
• Auditing Shine/Inspect
• Phase 4 of 5 S: Standardize
359
Workshop Topics Review (continued)

• Auditing Standardize
• Exercise 4 Identify and Develop a Plan on How to Standardize the
5 S Program within the Plant
• Discuss Standardize Observations/Opportunities for
• Phase 5 of 5 S: Sustain
• Auditing Sustain
• Exercise 5 Identify and Develop a Plan on How the Plant Can
Sustain the 5 S Program
• Discuss Sustain Observations/Opportunities for Implementing 5 S
Projects
360
180
10/9/2016
Workshop Objectives Review
• Learn the benefits of 5 S

• Understand the definition and meaning of
5 Ss
• Learn the proper strategy for implementing
a 5 S program
• Conduct 5 S exercises
• Apply 5 S principles at work
361
Thank You
Solutions Business Consultant
181

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Arab Academy for Science and Technology

Basics of Inventory and Warehouse

Solutions Business Consultant

Module 1 : Inventory Management

Module 1 : Inventory Management

Activity Classes of inventory

Production Raw materials and WIP

Aggregate Inventory Management

Item Inventory Management

• Importance of inventory items

Module 1 : Inventory Management

Inventory and the Flow of Materials

Raw material Components MRO

Warehouse Warehouse Warehouse

Customer Customer Customer

Reasons for Carrying Inventory

Inventory and Other Objectives

Module 1 : Inventory Management

Product Direct material

Transportation Direct labor

Customs duties Factory overhead

Opportunity cost Personnel Pilferage

Problem 6.1 Solution

Lost capacity cost

Problem 6.2 Solution

Production and supplier Expediting costs

Total cost of carrying ______________ inventory =

Problem 6.3 Solution

Inventory cost $1,500 $3,000 $1,500 $0

Total cost of carrying anticipation inventory = $6,000

Module 1 : Inventory Management

Balance Sheet Equation

Assets—items you own

b. If the assets are $1,000 and liabilities are $600,

Problem 6.4 Solution

• If the owners’ equity is $1,000 and liabilities are

• If the assets are $1,000 and liabilities are $600,

Income = revenue – expenses

Income from sales of Costs incurred in

Increases owners’ Decreases owners’

Inventory and Financial Results

From a supply chain management

Problem 6.5 Solution

Cash Flow Analysis

Raw material Cash outflow

Accounts receivable paid Cash inflow

• Days of supply is used to measure the

Annual cost of goods sold

Problem 6.6 Solution

Annual cost of goods sold

c. Reduction in inventory = $2,500,000  $1,000,000 = $1,500,000

d. Annual savings = 20% x $1,500,000 = $300,000

Module 1 : Inventory Management

Learning Objectives (cont.)

Module 1 : Inventory Management

How Much to Order at One Time

Fixed Order Quantity

Order n Periods of Supply

EOQ Manages Cost Tradeoffs

The EOQ model manages tradeoffs by balancing

EOQ Calculation Process

Step 1: Annual Ordering Cost