Friday, April 12, 2013

Logistics – Warehouse Management (Material Handling & Order Picking) – Part V

One of our blog reader Mr. Johny Marsh has rightly commented as “Warehouse Management is also called Material Handling”.  Hence in this session, I am planning to write on Material Handling  and Order Picking process followed at Warehouse.

With the advent of technology changes and the increasing globalization, the logistics and supply chain has become competitive area for companies. New trends in the Supply Chain and technology changes has impacted the warehouse operation and their performances.

Impact of new trends in the supply chain on the warehouse operation and performance

a.        Increasing the customers bargaining power
b.      Change of Customer Order pattern
c.       Consolidation of warehouse (Centralization) – Network design

  •    Increasing power of customers -
The existence of various substitutable products and stiffer competition, makes companies to realize that a faster delivery system of their products to customer is of paramount importance for them to survive and also use this as a competitive tactics against their competitors. The requirement of faster delivery has large impact on warehousing operations. Products need to be stored and picked in a way that the customer order execution time in a warehouse can be shortened. New material handling equipments are introduced to assist the put-away and order picking process.

  •         Change of Customer Order Pattern
With the advent of Just In Time (JIT) and Vendor Managed Inventory (VMI) concepts, the companies are reducing their customer order size and increasing the order frequencies (higher order arrival rate) to suppliers, in order to keep the inventory level low and also to maximise the usage of  warehouse space at their end.  For example the suppliers who received 12 Customer orders (1 order per month) in a year from their customer earlier are now started getting  18 Customer Orders per year.

To provide high customer service level and to achieve economics of scale in transportation,
these small size orders need to meet the tight shipment schedule. Hence the time available for picking orders at warehouses becomes shorter, which demands speedy order picking processing at warehouses.

  •          Centralization of Warehouse
During the last two decades there is a change in the approach related to network design planning in the supply chain ie., Centralized Vs Decentralized facilities (warehouses). Compared to a decentralized network, centralized facilities have the following advantages.
  • Lower overhead cost due to decrease in facility (warehouse) numbers (for example instead of having 10 decentralized warehouses to cater entire India customer base having 4 or 5 centralized warehouses.  This reduces the overall expenses like warehouse rent, salary to workers, material handling equipments etc.  However one may note down that it may increases the transportation cost due to long distance to be covered. But saving in other overhead cost as explained above will offset the increase in transportation cost.
  •  Decreased inventory level. For example if you are having 10 decentralized warehouses you need to keep safety stocks across all 10 warehouses.  Instead if you have 4 or 5 centralized warehouse, your safety stock  level will go down as compared to decentralized warehouses. 
  • Higher fill rate.  The factory or production units find it easy to dispatch finished goods in bulk to fewer warehouses due to centralization.  The centralized warehouse will be having large variety of products and hence the higher fill rate with respect to customer order execution.
The result of centralization is fewer warehouses with greater variety of products. The direct impact of the larger product variety on warehouses is the pressure on space utilization. To accommodate the variety of products, warehouses become larger, which causes longer travel time in picking orders and subsequently impacts order response time.

Impact of Technology change on the warehouse operation and performance

In warehouses many operations which used to be done manually have now been mechanized or automated.

In an fully automated warehouse, the putaway operations are carried as details below. 
  • a.       machines and robots are used to stack the incoming products basis SKU/Item  on pallets.
  • b.      The content of each pallet such as SKU / number of units, batch number, rate etc are communicated / input into  the central computer which assigns the pallet to an empty location in the storage area.
  • c.       Conveyors or Vehicles  are used to transport the incoming pallets to the storage location
  • d.      Automated Storage/Retrieval machines are used to store the pallet at the right position in the storage area.

Note : Putaway is  the process in which materials are stored/putawy after being received by a warehouse. Determining where the materials will be stored and organized is part of this process, as well as identifying the materials in order for easy future retrieval.

In an fully automated warehouse, the retrieval & shipment operations are carried as details below. 
  •  Basis the customer order, the computer (Warehouse Management System) will direct or inform the number of pallets and item units to be picked from the respective storage location details.
  • Storage/Retrieval machines are used to assist order picking process.  The picking process consists of few methodologies like Batch Picking, Zone Picking.  These picking process is also supported by systems such as pick-to-light, pick-to-voice, Radio Frequency Identification (RFID), etc.  We will learn more about these terms in our next session.
  • The picked orders can be transferred through conveyor systems to an automated sorting area / location which contains multiple chutes (sub area)  for different orders. For example you can pick 3 different customer orders which consist of multiple items / SKUs through Batch or Zone picking.  All items picked against a given customer order goes only to a one specific chute (sub area) allotted by the computer system for that customer, without any mix up.
  • The orders for a specific customer are sorted automatically to the same chute. Sorted orders are then packed and grouped for shipments.
  • The development of information technology and warehouse management software systems integrates the Putaway and retrieval processes seamlessly.

Tuesday, February 5, 2013

Inventory Management & Control - Part III

In this session we will review about Inventory Management & Control System.

Before proceeding further, let us understand the Inventory Management and Inventory Control.   Inventory management focuses on getting necessary / essential inventory to the right places at the right time , and inventory control focuses on maintaining and using that inventory most effectively to keep costs down.

The primary objectives of inventory management are:

  • To minimize the possibility of disruption in the production schedule of a firm for want of raw material, stock and spares.  A low level of inventories may result in frequent interruptions in the production schedule resulting in under-utilization of production capacity and it lower sales.  So it is important to have necessary  / essential inventories  to the right places at the right time.
  • To keep down capital investment in inventories. This activity is effective inventory control method.  The investment in inventories should be just sufficient in the optimum level. Excessive inventory is an idle resource and it should be avoided. The major issues related to excessive inventories are:                 #   the unnecessary tie up of the firm’s funds and loss of profit.  The excessive level of inventories consumes the funds of business, which cannot be used for any other purpose and thus involves an opportunity cost                                                                                                                               #   excessive carrying cost, The carrying cost, such as the cost of storage (warehouse), handling Charges (put away, stacking,), insurance,  recording and inspection (quantity and quality),  are also increased in proportion to the volume of inventories. This cost will impair the concern profitability further and                                                                                                                                        #   the risk of liquidity / not selling due to fast technology changes and severe competition. 

Hence Inventory control activity is a subset of Inventory Management activity.

The aim of inventory manager to  maintain adequate inventory (avoid excess / low inventory) for smooth running of the business operations. Efforts should be made to place orders at the right time with the right source to purchase the right quantity at the right price and quality. The effective inventory management should
  • maintain sufficient stock of raw material in the period of short supply and anticipate price changes.
  • ensure a continuous supply of material to production department facilitating uninterrupted production.
  • minimize investment in inventories and minimize the carrying cost and time.
  • maintain sufficient stock of finished goods and  ensure that finished goods are available for delivery to customers to fulfill orders, smooth sales operation and efficient customer service.

What is Inventory Control ?

Inventory control is a set of policies and operating procedures that are designed to maintain and maximize the use of inventory, so that it generates the maximum profit from the least amount of inventory investment without affecting customer satisfaction levels.

Most companies have a never-ending goal to find the best or suitable method to control one of their largest assets (inventory). Many different methods of inventory control exist, from the very basic to the very complex (Refer given below chart).  All methods aim toward one target to have the lowest total cost of ownership against inventory, while having the highest possible service levels. Some methods find a balance between the cost and service level components, while others favor one component over the other.  Basically the inventory control method should be linked to company objective.  The top management of the compnay decides that service level between Inventory and production department should be 95% on monthly basis then the inventory manager has to work out the inventory level accordingly.

Inventory control methods vary from company to company, product to product and component to component. In a company there are few fast moving items along with slow moving items.   The inventory control method that works best for fast-moving items might not work as well for slow-moving items.  A company might have  lot of products and components,  but use only few different inventory control methods. We need to understand that there is no perfect or standard method to manage inventory. A magic formula that computes correct inventory levels does not exist. A company can only seek to find the best method that results in reduced cost and increased service levels.

In the next session we will explore more about  inventory control methods with more practical example.