Stores / Warehouse Management Module

STORES MODULE

An initiative of Hash Management Services LLP

A Business Sense Publication

For more free resources visit www.businessense.in

Property of Hash Management Services LLP. Unauthorized copying, circulating, modifying and using it without the knowledge / approval of Hash Management Services LLP is prohibited.

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Contents

Section 1 – Introduction and Basic Processes

Section 2* – Materials Classification Techniques

Section 3* – Ordering Techniques

Section 4 – Storage techniques

Section 5 – MIS Reports and Analyses Points

Section 6 – Templates * - common to Purchase module


Section 1 : Introduction

A professionally managed Store has a process and a space within, to receive the incoming

materials (Receiving Bay), keep them for as long as they are not required for use (Custody)

and then to move them out of stores for use (Issue)

The objective is to efficiently and economically provide the right materials at the time when it

is required and in the condition in which it is required.

Receipt Issues

3 2 1

Stores

Holding

From

suppliers

to

production

/ users


Organization Structure*

CEO

Stores Manager

Stores Executive / Assistant



This is a standard organization structure for Stores Function

Stores Manager reports to the CEO of the company

There would be a few Stores Executives / Assistants reporting to the Stores Manager

Each Stores executive would typically focus on a single raw material category

* - We have explained a typical functional hierarchy. It may vary according to each organization


Responsibilities of a Stores Manager

Ensure that the materials are stored without any impact on the quality, physical and chemical composition that the materials

are intended for use in the subsequent functions.

Ensure that the data/information and regular audits regarding the materials stock positions and locations are updated daily

and correctly.

ABC Classification of Items ( along with Purchase function )

Regular stock analysis and salvaging the non-moving items.

Regular coordination with the Purchase and Production teams to ensure the material availability and issues.

Ensuring that the stores is tidy, organized and search free.


Responsibilities of a Store Executive

Proper documentation and storage of materials including receiving, identifying space, labeling, issuing and stock keeping

Proper Indenting of the net requirement based on the Production Plan

Updation of the bin-cards / system stock positions/ledgers

Perpetual stock keeping – daily stock verification for 5 items

First-In-First-Out (FIFO) – Material Issues

Focus on A and B category items. MinMax model/Two bin system for C category items

To make the stores Search-free, bend-free, count-free & climb-free

Key Activities of Stores Function

Analysis of A, B and C Category Items

Helps in identifying the key materials and maintain their stock

Helps in reducing the overall Inventory carrying cost

Reduces the complexity and enhance the ease of operations in the purchase function

20%

80%

80%

20%

Items Value



Lead time verification for all A & B category items at regular intervals (every 6 months)

Pull out the details of last 5 transaction for the items

Analyze the PO date vs. GRN date – note the lead time for the 5 transactions

Average of this gives the lead time and the standard deviation gives the Safety Stock days

S.No PO date GRN date Difference (days)

1 5 Dec 28 Dec 23

2 19 Dec 30 Dec 11

3 25 Dec 8 Jan 13

4 1 Jan 12 Jan 11

5 6 Jan 26 Jan 20

Lead time = average (23,11,13,11,20) = 15.6 days We can round it to 16 days Similarly Standard Deviation (Use STDEV function in MS Excel) of all 5 values would give us the Safety stock days = 5.5 days. We can round it to 6 days The item would take 16 days to reach the factory from the day of PO. The company needs to maintain 6 days of stock as safety stock for this item to account for any uncertainties on delivery




Issues and Receipts entries done on the same day

Make sure that Physical Stock and Book Stock are the same

Store all the heavy items in the bottom racks

Regular, Fast Moving items at the middle racks ( avoid climbing, bending)

Slow Moving and Non-moving items at the top racks

Rack Numberings along with the items stored inside list to be updated every 2 weeks

Monthly Closing Stock report to be submitted to the senior management every month


Stores Function – A Snapshot

Stores

Assistant

Warehouse

Material Issue

Requisition Slip

Production

Supervisors Materials

Accounting

Invoice & GRN

Perpetual Stock

Verifications

Purchase

Executive

Purchase

Indent

Stores - Process

Shipments

Invoice,

Delivery Challan

Issues

Receipts

Net

Requirement

Bill

Passing

Any part supplies/ Quality issues / changes from the above mentioned processes would be discussed with the Stores manager/ Senior Management and necessary actions would be taken.


Stores Process Flow - Receipts

Stores executive receives materials along with the invoice and Delivery Challan (DC)

After checking the quality& Quantity of the received materials against the PO, the Goods Receipt Note (GRN) is created by the Stores Executive

Invoice is sent to the Bill Passing / Accounts function for payments to the supplier

If the quality / Quantity of the incoming materials are not according to the PO, Purchase and other relevant functions are informed and necessary actions are taken

Action ranges from sending back the materials to the suppliers in case of major quality issues to adjustments in the payment schedules to the suppliers

Any part supplies/ Quality issues / changes from the above mentioned processes would be discussed with the Stores manager/ Senior Management and necessary actions

would be taken.


Stores Process Flow – Holding / Custody

Once received, the materials are stored in the allotted space

The Stock position is updated in the bin card, system stock /ledger on the same day

Stock count: every month the closing stock report is prepared and sent to the Stores Manager and the Senior Management of the company

Every day the stores executives count and verify the stock of at least 5 A& B class items. Any discrepancy in the physical stock, system stock/ledger and bin card should be reported to the Stores Manager

Any discrepancy in stock/ Quality issues / changes from the above mentioned processes would be discussed with the Stores manager/ Senior Management and

necessary actions would be taken.


Stores Process Flow – Issues to Production

Whenever the materials are required for the production function, a Material Issue Requisition (MIR) is created by the production supervisor and sent to the Stores Executive

Against the MIR, Stores Executive issues the required quantity for the materials and immediately updates the Bin card and system stock/ledger

In case of a new customer order, the stores executive would create the Net requirement for the order based on the Bill of Materials (BOM), Stock available in the stores corresponding to that order, Pending POs, and the delivery schedule

Indenting: The stores executive would raise a Purchase Indent (PI) to the purchase Executive during a new customer order / the existing materials in the stores reaches the ordering points

Any part issues/ Quality issues / changes from the above mentioned processes would be discussed with the Stores manager/ Senior Management and necessary actions would be taken.


Contents








Methodologies – ABC Classification

Pareto Analysis / 80-20 rule

20% of the items would constitute 80% of the value

Few other examples:

20% of the causes results in 80% of the defects

20% of the population controls 80% of the wealth

20%

80%

80%

20%

Items Value



COGS: All Raw Materials – 60~65%

Labor Cost – 7~8%

Power & utilities – 8~10%

.

.

.

_______________________

Total – 100%

In any organization, the raw materials form about 60~65% of the Cost of Goods Sold (COGS).



While analyzing the raw materials it would be clear that the top 20% of the items would constitute about 80% of the purchase value. Next 30~40% items would constitute about 15% of the purchase value. Remaining 50% of the items constitute 5% of the purchase value.

Few Items = More consumption in value

More Items = Low consumption in value

A Category

B Category

C Category



For e.g., Consider an organization where the total purchase value is about 2 Crores per month and there are about 300 different items.

In this case, typically, about 60 items would be in the A category

About 90 items in the B category and the rest in C Category

S.No Classification % of Items No of Items Purchase

Value in %

Purchase

Value (Rs)

1 A 20% 60 80% 1.6 Cr

2 B Next 30%. i.e.

Up to 50%

90 15% 0.3Cr

3 C Remaining

50%

150 5% 0.1Cr

4 Total 100% 300 100% 2 Cr



This analysis has to be done season-wise separately. ( peak season / moderate season and lean season of the year)

Consumption of the raw materials would follow the same trend as production/sales

Peak Season Moderate

Season

Moderate

Season

Lean

Season

Lean

Season

Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

Sales



Let us assume that the company has two major seasons. A peak season where the demand is high (October to March) and a moderate/low season (April to September). This ABC analysis has to be done every season (though there may not be major changes in the items in each category). For the season starting October, the data of the previous year (month-wise consumption data for all items) is used.

Price in

Rs. October November December January February March

1 X6 Kgs 961 455 1080 1278 1002 650 1057 920.3 884440.3 25.5% 25.5% A

2 X9 Kgs 867 1265 1200 1231 1198 1258 1272 1237.3 1072768.0 30.9% 56.4% A

3 X5 Kgs 654 1331 651 1470 971 896 1382 1116.8 730409.0 21.0% 77.4% A

4 X7 Kgs 153 629 1330 290 1045 1316 690 883.3 135150.0 3.9% 81.3% A

5 X4 Kgs 980 111 126 118 107 128 110 116.7 114333.3 3.3% 84.6% B

6 X8 Kgs 76 1038 170 1338 66 1498 1055 860.8 65423.3 1.9% 86.5% B

7 X1 Kgs 454 107 135 100 134 131 146 125.5 56977.0 1.6% 88.2% B

8 X15 Kgs 728 97 63 71 62 72 87 75.3 54842.7 1.6% 89.7% B

9 X14 Kgs 928 54 65 57 50 53 62 56.8 52741.3 1.5% 91.3% B

10 X13 Kgs 787 42 43 46 84 81 97 65.5 51548.5 1.5% 92.7% B

11 X2 Kgs 382 117 132 115 115 124 150 125.5 47941.0 1.4% 94.1% B

12 X10 Kgs 645 55 63 91 89 55 78 71.8 46332.5 1.3% 95.5% B

13 X16 Kgs 607 94 41 86 71 58 84 72.3 43906.3 1.3% 96.7% C

14 X18 Kgs 820 22 59 75 34 35 57 47.0 38540.0 1.1% 97.8% C

15 X3 Kgs 270 110 108 138 118 120 134 121.3 32760.0 0.9% 98.8% C

16 X12 Kgs 412 52 69 80 86 72 49 68.0 28016.0 0.8% 99.6% C

17 X17 Kgs 208 66 24 39 56 62 61 51.3 10677.3 0.3% 99.9% C

18 X11 Kgs 53 40 84 96 86 69 43 69.7 3692.3 0.1% 100.0% C

Total 3470499

Unit of

Measurment

Item

NameS.No

Sample done wth 18 items

Monthly Consumption in Kgs

Category

Cumulative

%

%

consumption

Avg

consumption

value in Rs.

Average in

Kgs



The top 4 items constituting about 80% of the average purchase value are in the A category. The next 8 items constitute 15% of the value, which are in the B Category. The remaining 6 items constitute 5% of the purchase value and they are in the C category.

Category No of Items Cumulative %

A 4 81.3

B 8 95.5

C 6 100

Focus more on A category items.

These are important and high

value items whose inventory

should be managed properly.

Overstocking may lock-up more

money leading to higher holding

cost and would have impact on the

working capital. Stock-out may

force production stoppages.


Contents








Ordering Techniques

Category Characteristics Ordering Techniques Reason

A Very High Value. Need to

monitor continuously

Scheduled Shipments / Standard

Order Quantity (SOQ)

For items whose consumption

is regular through-out

the season

Re-Order level For items whose consumption

do not follow a pattern

B

Moderate Value – Moderate

Impact on the Inventory

Holding

Re-Order level Order based on the Re-

Order level

C

Low Value – No major

impact on the Inventory

Holding Cost

MinMax / Two Bin System Do not focus more on the C

Category items


Ordering Techniques – Scheduled Shipments / Standard Order Quantity (SOQ)

Few items in the A category whose consumption does not vary across months can be ordered with a single purchase order asking the supplier to deliver the items as per the schedule the company gives the supplier.

For e.g.. Please refer to the Item X9 in the table. The consumption of this item does not vary across months (only slight variations). Average consumption of this item is around 1200 kgs per month. This item can be ordered with a single PO to the supplier for the entire season. Every week the company requires 300Kgs ( 4 X 300 = 1200). The supplier can send the items every week (300kgs). Payments can be made to the supplier month-wise.

Quantity in Kgs Week 1 Week 2 Week 3 Week 4

October 300 300 300 300

November 300 300 300 300

December 300 300 300 300

January 300 300 300 300

February 300 300 300 300

March 300 300 300 300

So in the PO the following details can be mentioned:

Total order quantity = 1200 per month for 6 months

Delivery : 300kgs per week


Ordering Techniques – Re-Order Level (ROL)

This method can be followed for most of the A and B category items. Leadtime of all these items should be known with a fair degree of accuracy. Safety stock (SS) to be determined ( 25% of the leadtime X daily consumption- can be taken initially)

Averge Monthly consumption in kgs - A 900

Per day consumption in kgs - B=A/25 36

Lead time in days - C 10

Leadtime Quantity in kgs - D=C*B 360

Safety Stock in days - E=C*25% 2.5

Safety Stock Quantity in kgs - F=E*B 90

Re-Order Level in kgs - G=D+F 450

Re-Order Quantity - D 360

Material Arrival

Material Arrival

Material Arrival

Safety Stock – 90 kgs

Lead

tim

e co

nsu

mp

tio

n-3

60 k

gs Average Stock holding

Re-Order Point

Day 1 Day 10

For.eg. consider an item X7 in the table mentioned

above.


Ordering Techniques – Re-Order Level (ROL) explained …

At the Day 1, the company has 360+90=450 kgs of stock. Purchase Order for 360 kgs should be placed now. At the end of 10th day, the stock remaining will be 90Kgs. On that day, 360kgs arrive from the supplier against the purchase order. In case of 1~2 days delays, the safety stock would be consumed. This would be adjusted in the subsequent purchase orders.

Sometimes, the Re-order quantity can be set as twice the lead time consumption (720kgs, in this case). In that case the next PO can be raised after 10 days. (at the point when the stock in hand reaches 360+90(SS) ). So,

Re-Order Level/Point = 360+90 = 450 kg ; Order quantity = 360~720 kgs. Every time the stock reaches 450 kgs, Purchase to be done for 360 or 720 kgs.


Ordering Techniques – MinMax System

This system is similar to the Re-Order level system except that it follows simple calculations

A minimum level is set for each of the items covering the lead time of the item and the safety stock.

A maximum level is set which is 3 times~4 times the lead time consumption.

FULL300kgs

FULL300kgs

EMPTY0 kg

FULL300kgs

FULL300kgs

FULL300kgs

Both the bins are full

Do not order. Wait till one bin becomes empty

One Bin is empty. Order 600 kgs. (By the time the materials arrive the second bin also nears empty level)

Both the bins are full

Do not order. Wait till one bin becomes empty

Stage 1

Stage 2

Stage 3Minimum level in kgs 300

Maximum level in Kgs 900


Benefits of the various ordering systems

All the three methods of ordering the materials require close coordination with the Stores.

Effective use of these three methods would bring down the inventory by around 25~30% of the current levels (from our past experience in various firms across industries)

Before

Implementation

After

Implementation

25~30%

reduction in

inventory



Contents









Objectives of the Store

Effective use of the space available

Protection (of the materials & the personnel)

Efficiency – how quickly can a material be delivered to the user departments

Productivity Improvement (Quick retrieval of the materials, volumes handled)

Mechanization – depending on the volume handled / senior management’s decision


Storage Techniques All the materials are stored inside the stores in

proper racks / bins. The bins should be labeled properly for easy identification.

The racks can be placed in a slight inclination so that First-in-First-Out is followed.

Recent Items placed at the rear

Items for issues taken from the front side –to ensure FIFO


Rack Design - Sample

A1 – Nuts

A2 - Bolts

A3 -Screws

A4 - Washers

B1 – Rubber materials

B2 - Threads

B3- Nails

B4– Plastic

items

C1 - Tools

C2 -Adhesives

C3 – Welding

rods

C4 –Electrical

Items

S.no Rack No Items

1 A1 Nuts

2 A2 Bolts

3 A3 Screws

4 A4 Washers

5 B1 Rubber Matls

6 B2 Threads

7 B3 Nails

8 B4 Plastic items

9 C1 Tools

10 C2 Adhesives

11 C3 Welding Rods

12 C4 ElectricalItems

Rack Master List

Storage Techniques

Each bin should be given a identification number A1, A2, B1, B2 etc.

An excel sheet containing the Bin identification number and the items present in the bin should be maintained.

By this way, dependence on a person is reduced

Any new person can look at the item in the excel sheet, go to the corresponding bin and pick the item.

Any changes in the material storage bin should be updated in the excel sheet.


Storage Techniques

Following are the items that can be

stored in adjacent racks

Different Product of the same

type

Product which are issued as sets

(paint & paint brush)

Products with similar weight &

dimensions


Stores Layout

Each different value stream within the warehouse will use dedicated space and assets

Each value stream will have a dedicated flow

The result will be better customer service, faster response and less waiting

Value stream X

Value stream Y

Value stream Z


Stores Layout

Warehouse layout must be designed in order to separate inbound and outbound flows

This means providing physically different spaces and aisles for replenishment and for picking or operating inbound and outbound at different times

The result will be increased productivity, reduced stock loss and reduced accidents

Inbound / replenishment flow

Outbound / picking flow


Stores Layout

The warehouse layout must ensure there is no wasted transport or movement Long journeys

Empty returns


Storage of Materials

Bin cards should be placed in each bin to indicate the quantity present in the racks.

Items which are frequently used/fast moving should be kept in such a way that the stores executive does not bend/climb the racks to take the items.

Items which are not used frequently/slow/rarely moving items can be kept at the top of the racks. Heavy items should be kept at the bottom racks.

Bin Card - Template

Item code: Item Name

Unit of Measurement Rack No

Supplier Code Re-Order Level / Min Max Level:

Supplier Name Lead time

City of the Supplier Safety stock

Date Issues (subtract) Receipts (add) Available Qty


Designing the stores

Following are the points that should be noted while designing the stores:

Single floor facilities are better (wherever possible)

Move goods in a straight-line (avoid zigzag/overlapping gangways)

Use the most efficient materials handling equipment

Optimize aisle space

Use full building height – design racks based on the height of the materials stored/to be stored in each rack ( optimal air gap between the materials and the inner edge of the rack)

Large air gap

– wastage of

space

Minimal air gap

Air-Free racks


Count-Free racks

Based on the size of the materials, paste numbers zero to the storage quantity at the bottom surface of the rack

In this case the storage space is designed for 20 items. So numbers are pasted from 0 to 19

Immediately by looking at the number next to the material we can identify there are 14 materials left in the rack : count-free

If the next material is issued, number 13 will become visible. So we can say without counting that there are 13 items remaining

0 1 2 3 4

5 6 7 8 9

10 11 12 13 14

15 16 17 18 19

14 items in the

rack


Stock Maintenance – Perpetual Stock Counting

Stores personnel should maintain that the physical stock and the book stock should be equal all the time

Every day at least 5 ‘A’-category items should be counted and verified for stock discrepancy – this is called Perpetual Stock Counting

By this method the stock position of all the key items would be monitored regularly

In case of any discrepancy, Stores Manager should be informed immediately

S.no Item

Code

Item description Category Inspection

Date

Book Stock Physical

Stock

Difference Remarks Next

Inspection

Date


Contents








MIS Reports & Analyses

Type Key Parameters Report Name Nature of Report Frequency Prepared by

Absolute Reports Monthly Issues, Receipts and

Closing Stock Monthly Stock report

Category-wise / Item-wise

- descending in value

terms Monthly Stores Executive

Non-Moving Stock value Non-Moving Stock Report Item-wise / Category-wise Every 3 months Stores Executive

Variance Reports Stock Discrepancy value Stock Discrepancy Report Item-wise / Category-wise Monthly Stores Executive

Quality issues in the incoming

materials Incoming Quality Report*

Item-wise / trend chart

comparing the last 3

months Monthly

Purchase Executive +

Stores Executive

The list below explains the various parameters to track, the reports to generate, the frequency and the person-in-charge in the Purchase function:

* - to be jointly done with Purchase Function


Analysis/questions to ask from the reports…

Type Key Parameters Report Name Frequency Questions to ask

Absolute Reports

Monthly Issues,

Receipts and

Closing Stock

Monthly Stock

report Monthly

What is the category-wise consumption, receipts and closing stock. Is the closing stock of A&B

class items more than 30 days of consumption? How to bring the closing stock value down ? Can

we convert any major item into batches of small quantity instead of ordering one time?

Non-Moving Stock

value

Non-Moving

Stock Report Every 3 months

What are the major non-moving items ? Why they have not issued in the last 3 months? How to

use / salvage them ?

Variance Reports

Stock Discrepancy

value

Stock

Discrepancy

Report Monthly

What is the value of the stock discrepancy ? In that what is the value of A & B category items ? Is

there is downward trend observed in the stock discrepancy value? If not, why? What are the

corrective actions taken to avoid discrepancy in the future?

Quality issues in

the incoming

materials

Incoming

Quality Report* Monthly

What is the pareto of the quality issues in the incoming materials ? What is the trend ? Is it for

the same item / from same supplier? What is the time taken by the supplier to rectify/send new

materials ? How to avoid this in the future ?


Role of the Senior Management

All the above initiatives would work only if the senior management is committed to the change and continuously monitors the processes.

There would be a lot of resistance initially for this and would take 2~3 months for the initiatives to sustain.

Regular interactions with the personnel are the key and a systematic follow-up is vital for the initiatives to be successful.

Meetings with the respective personnel can be scheduled for a pre-determined date every month/week.

The minutes of the meetings (MOM) should be sent to the respective personnel for further action. MOM should be precise with the action plan, responsibility and the target date for completion.


Contents








Monthly Closing Stock Report


S.No Item Code Item Description

Item

Categor

y

Price

(Rs) UOM Opening Stock Receipts Issues

Closing

Stock

Closing Stock

value

1 1009 Steel Rods A 500 tons 200 60 35 225

112,500

2 1003 Steel Wires A 500 tons 150 75 60 165

82,500


Non-Moving Stock Report

Over a period of time, this list should be empty !!

S.No Item Code Item Description

Item

Category UoM

Quantity on

Hand

Purchase

Value

Purchased

on

Last Issue

date

Reasons for nil

usage

Action Plan

suggested by Senior

Management

1 1009 Steel Rods A tons 500

45,000 12-Jul-10 30-Dec-10

Production of that

model - stopped

Try to talk to the

suppliers and return

the materials


Stock Discrepancy Report

S.No Date Item Code Item Name

Item

Category

Book

Stock

Physical

Stock Difference

Reason for

Shortage/excess

Corrective Action

Taken

1 15-Jun-11 1009 Steel Rods A 247 258 11

Wrong entry after

counting

Counting machine

would be bought to

solve it

Over a period of time, this list should be empty !!


Incoming Quality Report*

S.No Item Code

Item

Description

Item

Category

Purchase

Order No PO date Quantity UoM

Supplier

Code

Supplier

Name

Quality

Problem

No of

Defective

items

Repeated

Issue Corrective Action

1 1008 Steel Rods A A2345 15-Jan 25.00 tons 1234

ABC

Metals cracks 25 yes

Sent back to

supplier. Future

dispatches only after

100% quality checks

* - to be jointly done with the Purchase Function

Reasons for quality issues must be sorted out with the suppliers. Items which frequently appears in the list should be examined and necessary action to be taken

STORES MODULE

An initiative of Hash Management Services LLP

A Business Sense Publication

For more free resources visit www.businessense.in

For any queries / suggestions / requests

Call us: +91 91766 13965

or

Email us: [email protected]

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Stores / Warehouse Management Module

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