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Managing the WMS in RADIO BEACON time

“If you always did what you always did you will always get what you always got.”

- Mark Twain

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Module Objectives

The importance of inventoryComponents of inventory carrying costQuestions to ask prospective customers

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Acronym Quiz

ABCFIFOJITROILTLSKUUPC

Activity-based costingFirst-in, First-out inventory valuationJust-in-time Inventory ManagementReturn on InvestmentLess than truckloadStock keeping unitUniform product code

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Basic Questions about Inventory

Why do companies keep inventory on hand?– To provide prompt service to their customers

What are the costs of inventory?– Space– $– Obsolescence

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Inventory – A Definition

Inventory is money tied up in resources– Producers employ a variety of resources – capital,

materials, labour, knowledge – and convert them into stock, called inventory

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Objectives of Inventory

ProximitySpeedCost optimization

Radio Beacon® assists in mobilizing inventory. Inventory can be optimized to serve customers effectively and save money.

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Inventory is Costly

Costs money to carry until used or sold– Defined as carrying cost, which is the sum of all

associated costs until goods are sold. A significant part of this cost is interest, the time value of money. Interest cost is based on the inventory valuation.

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Inventory is Costly

Other cost components– Materials and finished goods handling– Storage costs – rent, depreciation, utilities,

insurance, security

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Carrying Cost CalculationP = Product value (average) $100,000W = Storage cost/month $500T = Storage period 90 days in a 360 day yearI = Simple Interest 12% per yearD = Damage/obsolescence 1% per year

(a) Interest = P X I X T / 360 $3,000 C

(b) Carrying Cost = C + W + D$3,000 $1,500 $250 $4,750

(c) Inventory Carrying Rate = $4,750 / $100,000

4.75%

(d) Inventory Value after 90 Days = P + C + W - D$100,000 $3,000 $1,500 $250

$104,250

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Inventory is Costly

Tip– Carefully assess the inventory costs in terms of

shrinkage, loss and damage, mysterious disappearance, theft and obsolescence

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Develop Qualitative information

Collect reliable logistics information about your products, customers, suppliers, manufacturing process, inventory and network from your existing databasesIf necessary, simulate your network with the aid of modeling techniques.

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Product Information

$ Value?Handling, storage, transportation, shelf life, hazardous characteristics?Seasonality?Temperature protection?Loss and damage experience?Obsolescence factor?Space requirements?Warehouse services needs?

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Customer Information

Who are your customers?Where are they located – are they concentrated or dispersed?What are your customers’ delivery requirements?What are your channels of distribution?What are your domestic or global marketing areas and regions?Are your products readily available from the competition?

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Supplier Information

What determines your need for raw materials or supplies inventory?Are raw materials and supplies readily available or do they have to be made to order?What are your ordering patterns?Are suppliers reliable and timely?

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Inbound/Outbound Shipping

What are your freight terms?What are the modes of transportation?Are they effective and cost-efficient?How many customers have you lost as a result of shipping errors?

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Raw Materials Inventory Information

What determines your need for raw materials inventory?How have or can you develop alternative sources of raw materials?Could you reduce raw materials and supplies inventories and related warehousing cost by changing your purchasing practices and method of production and scheduling?

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Finished Goods Inventory Information

What determines your need for finished goods inventory – customers ordering patterns and practices, market presence and share, or competition?Have quality demands (JIT, ECR, QR, ISO 9000) increased or decreased inventory locations and volumes?Have you calculated your response time?What have you done to shorten your response time?

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Distribution Network

Why and how were inventory locations selected?Are transportation transit times realistic?How are inventory availability and required levels determined?Does each location provide enough or too much space?What is the performance of each?Could you reduce the number of warehouse locations and still maintain acceptable service levels?

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Develop Quantitative Information

Shipments– Inbound (I/B)

• Domestic• Import

– Outbound (O/B)• Domestic• Export

– In Transit• From plant to warehouse• Between warehouses

Transportation Modes– Truckload (TL)– Less-than-truckload (LTL)– Container– Parcel – express shipping– Customer pickup

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Develop Quantitative Information

Average inventory volumeSq/Cu feet usedThroughput activity– # receipts– # orders– # shipments– Special services

Cost– Fixed and variable– Storage (time-based)– Handling (transaction-

based)– Allocations– Administration overhead

Warehouse/Distribution Centres

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Conclusion

Know which questions are applicable to your customersUnderstand the basic concepts of inventory and warehousingUnderstand the cost components of carrying inventory