Kwame Nkrumah University ofScience & Technology, Kumasi, Ghana
LOGISTICS & SUPPLY CHAINMANAGEMENTISD252Matilda Kokui Owusu-BioSupply Chain & Information Systems DepartmentSchool of [email protected]
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INTRODUCTION TO INVENTORYAND WAREHOUSINGMANAGEMENT
UNIT 4
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UNIT OVERVIEW
After reading this unit you should be able to:Understand the concept of inventory and reasonswhy inventory is held.Explain various types of inventory that are kept.Outline and explain the methods of controllinginventoryTo show the important of warehousing in thelogistics systemTo identify the major types or forms ofwarehousing
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What is Inventory?
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The terminology Inventory is of Americanorigin which is synonymous with stockassociated with British authors.
Inventory is a quantity or store of goodsthat is held for some purpose or use.The term may also be used as a verb,meaning to take inventory or to count allgoods held in inventory).
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In-house & Out-house Inventory•
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Inventory may be kept "in-house," meaning onthe premises or nearby for immediate use;Or it may be held in a distant warehouse ordistribution centre for future use.With the exception of firms practising JIT,the term "inventory" implies a storedquantity of goods that exceeds what isneeded for the firm to function at thecurrent time (e.g., within the next few hours,days, etc).
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Why Keep Inventory?
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Balancing Supply and DemandKeep Operations Running (by usingWIP inventory)Protection from UncertaintiesHedge against price increasesQuantity Discount
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Forms of Inventory
Inventory may exist in three mainforms namely;
Finished goodsWork in progress andRaw materials.
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Types of Inventory
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Cycle InventoryCycle stock is inventory that resultsfrom replenishment of inventory sold orused in production.It is required in order to meet demandunder conditions of certainty - that is,when the firm can predict demand andreplenishment times (lead-times)
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In-transit InventoriesAre items that are en route from one location toanother.Safety or buffer stockIt is held in excess of cycle stock because ofuncertainty in demand or lead time.Speculative stockThis is inventory held for reasons other thansatisfying current demand
Types of Inventory
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Seasonal/Anticipatory stock: It is a form ofspeculative stock that involves theaccumulation of inventory before a seasonalperiod begins.Maintenance, Repair, and Operating supplies(MRO): They are items that are used to supportand maintain the production process and itsinfrastructure.
Examples of MRO goods include oils,lubricants, coolants, janitorial supplies,uniforms, gloves, packing material, tools, nuts,bolts, screws, etc.
Types of Inventory
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Inventory Control Methods•
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Min-Max Plan: establishes two levels ofinventory/stockWhen the items/materials/units, reach theminimum level, the order to replenish the stockis placed.The maximum level is the level that the stockquantity should not exceed, as it will put aconsiderable strain on the finances of thecompany andTwo Bin System: sorts inventory into two bins,or piles.
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• Order Cycling System: This system is basedupon a reviewed timetable. According to thissystem, a review of the entire inventory isdone at regular intervals, such as 30 days, 60days or 90 days.
Inventory Control Methods cont’d…
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ABC Analysis•
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Any stock is segregated into differentsections These items are classified into 3 sections, A,B and C.
Section A consists of limited number ofitems that are very expensive.Section B has items that are not expensiveand the number of units that is to beordered is also not very large.Section C consists of numerous items thathave a low monetary value.
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The logic behind such segregation is thatevery section is viewed differently by the costaccountant, due to difference in order time,reorder time and delivery period.For example, though the units in section A areless, their monetary value is also highThe ABC analysis is a simple and probably themost effective of all stock control methods. others FIFO and LIFO
ABC Analysis cont’d…
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WAREHOUSING
Warehousing is an integral part of every logisticssystem.
These include state-of-the-art, professionallymanaged warehouses, as well as companystockrooms, garages, self-store facilities andeven garden and sheds.Warehousing plays a vital role in providing adesired level of customer service at the lowestpossible total cost.Warehousing activity is an important linkbetween the producer and the customer.
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What Is Warehousing?We can define warehousing as;
That part of a firm's logistics system thatstores products (raw materials, parts, goods-in-process, finished goods) at and betweenpoint of origin and point of consumption andprovides information to management on thestatus, condition and disposition of itemsbeing stored.
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The Nature & Importance of Warehousing
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Warehousing traditionally provides storageof products (referred to as inventory/stock)during all phases of the logistics process.Why do companies hold inventories instorage?
(The reasons are similar to that of the inventory
management.)
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Types of Warehousing
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Cross-docking warehousing:warehouses serve primarily as 'distributionmixing centres.
Contract warehousing:a long-term mutually beneficial arrangementwhich provides unique and speciallytailored warehousing and logistics servicesexclusively to one client, where vendor andclient share the risks associate with theoperation
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• Public warehousing:General Merchandise WarehouseRefrigerated Warehouses(cold storage,perishableBonded Warehouses (Under gov’t controlleduntil sold and taxies and levies paid)Household Goods WarehousesSpecial Commodity Warehouses (Cotton, Grains,Wools, etc)Bulk Storage Warehouses (BOST)
Types of Warehousing cont’d…
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• Private warehousing:This type of warehouse is owned andoperated by channel suppliers andresellers and used in their own distributionactivity.
Types of Warehousing cont’d….
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Warehouse Functions
Storage of goods to permit managing productflow or to accommodate longer productionruns.Serves as a mixing point where products fromdifferent suppliers are mixed and thendistributed to fulfill customer orders;As a sales branch and customer servicelocation;As a source of supplies for production;As a staging area for final packaging orfinishing.
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End ofLectureThank
