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Chapter Twelve – Physical Inventory and Warehouse Management

CPIM Exam – Basics of Supply Chain Management Practice Study Sheet  Ch... thumbnail 1 summary

CPIM Exam – Basics of Supply Chain Management Practice Study Sheet 

Chapter Twelve – Physical Inventory and Warehouse Management

• Warehousing management objectives are to 1) minimize cost 2) maximize customer service

• Elements include 1) provide fast customer service 2) track items 3) minimize the total cost of moving goods in and out of storage 4) communicate with customers

• Capital costs are space and materials handling equipment (based on peak demand). Operating costs include labor, and productivity of labor is measured in # of units that can be moved each day (which depends on capital investment)

• Warehouse activities include the following elements:
1. Receive goods 1) check vs. order and bill of lading 2) check quantities 3) check for damage 4) inspect goods if required
2. Identify the goods (put SKU on them)
3. Put goods in storage
4. Hold goods (protect and keep in good condition)
5. Pick goods (select from stock and bring to dock)
6. Marshal the shipment (select goods that comprise a single order, check, update order records)
7. Dispatch the shipment (package orders, prepare documents, load on vehicle)
8. Operate an information system (maintain records, may be manual or computer based)

• Best warehouse practices 1) maximize use of space (largest capital cost) 2) use labor and equipment effectively (largest operating cost, more productive)

• Cube Utilization and Accessibility – goods are stored on the floor and above the floor. Space is also required for aisles, receiving, shipping, offices, order picking and assembly

Accessibility means that you can get to the goods you want with a minimum amount of effort (if you don’t have to move anything else, it is 100% accessible)

Cube utilization can be increased by putting in racks or tiers (additional capital cost to reduce handling costs)

• Basic stock locating systems 1) group functionally related items together (all hardware) 2) group fast-moving items together 3) group physically similar items together (i.e. items that need to be frozen) 4) locate working stock and reserve stock separately (working stock used for order picking)

Fixed location system assigns an SKU a permanent location. Minimize record keeping (only uses 50% of cube space)

Floating location system stores goods where ever a location can be found. Improves cube utilization but must be computer based

Point of use storage puts inventory close to where it will be used (on the assembly line)

Central storage puts all inventory in a central location to improve control and maintain records

• Methods of order picking and assembly
1. Area system – the order picker walks thru the aisle like a supermarket (used for small places)
2. Zone system – the warehouse is broken into zones, and order pickers work only in their own area. Each picker sends them to the marshaling area where they are assembled for shipment (only one order at a time)

      3. Multi-order system – same as zone system except that a number of orders are aggregated before sending to marshaling area
• Reserve stock and working stock may be separated – a separate work force is used to replenish the working stock from the reserve stock

• To maximize control, use a good part numbering system. Use a simple, well-documented transaction system 1) identify item 2) verify quantity 3) record the transaction 4) physically execute the transaction. Limit physical access (lock). Train your work force well

• Accurate inventory records allow you to 1) operate an effective materials management system 2) maintain satisfactory customer service (don’t promise what you don’t have) 3) operate effectively and efficiently 4) analyze inventory

• Poor inventory records will result in 1) lost sales 2) shortages 3) excess inventory 4) low productivity 5) poor delivery performance 6) excessive expediting

• Causes of inventory errors include 1) unauthorized transactions 2) unsecured access 3) poor training 4) inaccurate transactions 5) poor system 6) lack of audit capability (cycle counting)

• Measuring inventory accuracy is done through tolerance (amount of permissible variation between inventory records and physical count) – may be 100% or less

• Important to audit records to have accurate inventory and to audit the system to find causes of errors and eliminate them (cycle counts track flaws, periodic audits do not)

• Primary purpose of periodic (annual) inventory is for financial auditing. Needs 1) housekeeping (sort inventory) 2) identification 3) training

• Process of physical inventory 1) count items and record on a ticket 2) verify count by recounting or sampling 3) when verification is complete collect tickets 4) reconcile results to systems

Cycle counting counts inventory continually during the year. 1) allows for timely detection of problems 2) reduces “down time” for facility 3) uses trained personnel. Count frequency should increase based on value or ABC system

• Cycle counts can occur 1) when order is placed (ensure order is correct) 2) when order is received 3) when inventory record reaches zero 4) when a specified # of transactions has occurred 5) when an error occurs