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Chapter 12
Physical Inventory and Warehouse Management
Warehousing Management
· In a factory, “stores” in warehouses perform the same functions as warehouses and contain raw materials, work-in-process inventory, finished goods, supplies, and possibly repair parts. The objective of a warehouse is to minimize cost and maximize customer service.
· The costs of operating a warehouse can be broken down into capital and operating costs. Capital costs are those of space and materials handling equipment. The major operating cost is labor, and the measure of labor productivity is the number of units that an operator can move in a day.
· The efficient operation of the warehouse depends upon how well the processing activities are performed. These activities include receive goods, identify the goods, dispatch goods to storage, hold goods, pick goods, marshal the shipment, dispatch the shipment, and operate an information system .
· To maximize productivity and minimize cost, warehouse management must work to maximize space utilization and to use labor and equipment effectively. The effective use of warehouses is influenced by cube utilization and accessibility, stock location, order picking and assembly, and packaging
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Physical Control and Security
· What is needed is a system that makes it difficult for people to make mistakes or be dishonest. Several elements that help are a good part numbering system, a simple, well-documented transaction system, item identification, quantify verification, transaction recording, and physically execute the transaction.
· Inventory must be kept in a safe, secure place with limited general access.
Inventory Record Accuracy
· The usefulness of inventory record is directly related to its accuracy. Based on the inventory record, a company determines net requirements for an item, releases orders based on material availability, and performs inventory analysis. If the records are not accurate, there will be shortages of material, disrupted schedules, late deliveries, lost sales, low productivity, and excess inventory.
· Three pieces of information must be accurate: part description / number, quantity, and location. Accurate inventory records enable firms to operate an effective materials management system, maintain satisfactory customer service, operate effectively and efficiently, and analyze inventory. Inaccurate inventory records will result in lost sales, shortages and disrupted schedules, excess inventory, low productivity, poor delivery performance, and excessive expediting. Poor inventory record accuracy can be caused by many things, but they all result from poor record-keeping systems and poorly trained personnel.
· Tolerance is the amount of permissible variation between an inventory record and a physical count. Tolerances are set on individual items based on value, critical nature of the item, availability, lead time, ability to stop production, safety problems, or the difficulty of getting precise measurements
· There are two basic methods of checking the accuracy of inventory records: periodic counts of all items and cyclic counts of specified items. It is important to audit record accuracy, but it is more important to audit the system to find the causes of record inaccuracy and eliminate them. Cycle counting does this; periodic audits tend not to. The primary purpose of a periodic inventory is to satisfy the financial auditors that the inventory records represent the value of the inventory . Cycle counting is a system of counting inventory continually throughout the year. Physical inventory counts are scheduled so that each item is counted on a predetermined schedule.
· The number of times an item is counted in a year is called its count frequency. For an item, the count frequency should increase as the value of the item and number of transactions increase. Three common methods to determine frequency are the ABC method, zone method, and location audit method.
· Cycle counts can be scheduled at regular intervals or on special occasions. Some selection criteria for when to count are: when an order is placed, when an order is received, when the inventory record reaches zero, when a specified number of transactions have occurred, or when an error occurs.