Warehousing Management
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Objectives of Efficient Warehouse Operations
– Provide timely customer service
– Keep track of items so they can be found readily &
correctly
– Minimize the total physical effort & thus the cost of
moving goods into & out of storage
– Provide communication links w/ customers
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Warehousing Management
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Benefits of Warehouse Management
– Provide a place to store & protect inventory
– Reduce transportation costs
– Improve customer service levels
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Complexity of warehouse operation depends on the
# of SKUs handled & the # of orders received &
filled
Most activity in a warehouse is material handling
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Warehousing Management
• Costs of Operating a Warehouse
– Capital costs
• costs of space & materials handling equipment
– Operating costs
• cost of labor
• measure of labor productivity is the number of
units that an operator can move in a day
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Warehouse Activities
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Receive goods
Identify the goods
Dispatch goods to storage
Hold goods
Pick goods
Marshal shipment
Dispatch shipment
Operate an information system
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Warehouse Activities
• Receive goods
– accepts goods from outside transportation or
attached factory & accepts responsibility
• check the goods against an order & the bill of lading
• check the quantities
• check for damage & fill out damage reports if
necessary
• inspect goods if required
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Warehouse Activities
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Identify the goods
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Dispatch goods to storage
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goods are sorted & put away
Hold goods
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items are identified with the appropriate stock-keeping unit (SKU)
number (part number) & the quantity received recorded
goods are kept in storage & under proper protection until needed
Pick goods
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items required from stock must be selected from storage & brought to
a marshalling area
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Warehouse Activities
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Marshal the shipment
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Dispatch the shipment
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goods making up a single order are brought together &
checked for omissions or errors; order records are updated
orders are packaged, shipping documents are prepared, &
goods loaded on the vehicle
Operate an information system
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a record must be maintained for each item in stock showing
the quantity on hand, quantity received, quantity issued, &
location in the warehouse
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Warehouse Activities
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Maximize productivity & minimize cost,
warehouse management must work w/the
following:
– Maximize use of space
• space is the largest capital cost
– Effective use of labor & equipment
• labor is the largest operating cost
• material handling equipment is the second largest capital
cost
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Warehouse Activities
• Factors influencing effective use of
warehouses
– cube utilization and accessibility
– stock location
– order picking and assembly
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Warehouse Activities
• Cube utilization and accessibility
– Goods stored not just on the floor, but in the
cubic space of the warehouse; warehouse
capacity depends on how high goods can be
stored
– Accessibility means being able to get at the
goods wanted w/ a minimum amount of work
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Warehouse Activities
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Stock Location
– Objectives:
• To provide the required customer service
• To keep track of where items are stored
• To minimize effort to receive, put away, and retrieve items
– Basic Stock Locating Systems
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Group functionally related items together
Group fast-moving items together
Group physically similar items together
Locate working stock and reserve stock separately
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Warehouse Activities (Stock Location)
• Fixed Location
– SKU assigned a permanent location, & no
other items are stored there
– Fixed-location systems usually have poor cube
utilization
– Usually used in small warehouses; throughput
is small, & there are few SKUs
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Warehouse Activities (Stock Location)
• Floating (Random) Location
– Goods stored wherever there is appropriate space
– Advantage is improved cube utilization
– It requires accurate and up-to-date information
– Warehouses using floating-location systems are
usually computer-based
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Warehouse Activities (Stock Location)
• Two other systems sometimes used are:
– Point-of-use storage
• Inventory stored close to where it will be needed
• Used in repetitive manufacturing & JIT systems
– Central storage
• Contains all inventory in one central location
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Warehouse Activities (Stock Location)
• Advantages of Point-of-use Storage
– Materials are readily accessible to users
– Material handling is reduced or eliminated
– Central storage costs are reduced
– Material is accessible all the time
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Warehouse Activities (Stock Location)
• Advantages of Central Storage
– Ease of control
– Inventory record accuracy is easier to
maintain
– Specialized storage can be used
– Reduced safety stock, since users do not
need to carry their own safety stock
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Warehouse Activities
• Order Picking and Assembly
– When an order is received, items must be
obtained from the warehouse, grouped, &
prepared for shipment, systems used:
• Area system
• Zone system
• Multiorder system
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Warehouse Activities
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Order Picking and Assembly
– Area system
• Order picker circulates throughout warehouse selecting items on
an order -- order is ready to ship when order picker is finished
– Zone system
• Warehouse is divided into zones, & each picker works only in an
assigned zone -- order is divided by zone, & the items from each
zone are sent to the marshaling area
– Multiorder system
• Same as the zone system, except that each picker collects items for
a number of orders at the same time
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Warehousing: Physical Control and Security
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Physical Control & Security - Elements
– Good part numbering system
– Simple, well-documented transaction system
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Identify the item
Verify the quantity
Record the transaction
Physically execute the transaction
– Limited access
• Inventory must be kept in a safe, secure (locked) place with
limited general access
– Well-trained workforce
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Warehousing: Inventory Record Accuracy
• Accurate inventory records enable firms
to:
– Operate effective materials management
systems
– Maintain satisfactory customer service
– Operate effectively & efficiently
– Analyze inventory
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Warehousing: Inventory Record Accuracy
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Three pieces of information must be accurate:
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Part description (part number)
Quantity
Location
Inventory is a tangible asset that is easy to lose track of
unless properly controlled
Inaccurate inventory records will result in:
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Lost sales, shortages, & disrupted schedules
Excess inventory (of the wrong things)
Ineffective MRP / MRPII / ERP
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Warehousing: Inventory Record Accuracy
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Causes of Inventory Record Errors
– Unauthorized withdrawal of material
– Unsecured stockroom
– Poorly trained personnel
– Inaccurate transaction recording
– Poor transaction recording systems
– Lack of audit capability
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Warehousing: Inventory Record Accuracy
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Measuring Inventory Record Accuracy
– It is not practical to expect 100% accuracy.
– Tolerance
• To judge inventory accuracy, a tolerance level for each
part must be specified
• Tolerance is the amount of permissible variation between
an inventory record & a physical count.
• Tolerances are set on individual items based on value,
critical nature, availability, lead time, ability to stop prod.,
safety problems, or difficulty of measurement.
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Warehousing: Auditing Inventory Records
• Two basic methods of auditing inventory:
– Periodic (usually annual) counts of all items
– Cyclic (usually daily) counts of specified items
• Auditing the system finds causes of record
inaccuracy & eliminate them
• Cycle counting does this; periodic audits
tend not to
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Warehousing: Auditing Inventory Records
• Factors in good preparation for a physical
inventory are:
– Housekeeping
– Identification
– Training
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Warehousing: Auditing Inventory Records
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A physical inventory consists of four steps:
– Count items & record count on an attached ticket
– Verify this count by recounting or by sampling
– When the verification is finished, collect the tickets
& list the items in each department
– Reconcile the inventory records for differences
between the physical count & inventory dollars
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Warehousing: Auditing Inventory Records
• Problems with annual physical inventory:
– Usually the factory/facility has to be shut
down, thus losing production or business
– Labor & paperwork are expensive
– Job is often done hurriedly & poorly since
there is much pressure to get it done
– Many times, more errors are introduced
than are eliminated
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Warehousing: Auditing Inventory Records
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Cycle Counting
– A system of counting inventory continually
throughout the year
– Advantages of cycle counting:
• Timely detection & correction of problems
• Complete or partial reduction of lost production
• Use of personnel trained & dedicated to cycle counting
– Count frequency
• Number of times an item is counted in a year
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Warehousing: Auditing Inventory Records
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Count Frequency should increase as the value
of the item & number of transactions (chance of
error) increase, e.g., base the frequency of count on
annual dollar value usage
– Methods used
• ABC Method
• Zone Method
• Location Audit System
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Warehousing: Auditing Inventory Records
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Cycle counts can be scheduled at regular
intervals or special times
When to Count
– When an order is placed
– When an order is received
– When the inventory record reaches zero
– When an error occurs
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