FUNDAMENTALS OF

OPERATIONAL LOGISTICS
PART 2: Fundamental Knowledge of Operational Logistics
Chapter 5, 6, 7, 8, 9, 10, 11, 12, 13 & 14

FUNDAMENTALS OF
OPERATIONAL LOGISTICS
Chapter 8
Warehousing & Inventory Management

Learning Outcomes
At the end of this chapter, you should be able to:
Define the difference between a warehouse and a store
Understand the primary function of a warehouse
Apply the principles of material handling in daily chores
Know various types of pallet storage
Learn how to keep track of inventory
Use proper ABC analysis
Use proper stock take procedures

Part A: Warehousing
Introduction
Warehouses exist mainly to contribute to manufacturing and distribution
efficiency.
The evolution of todays complex supply chain provides an extended value
proposition to the whole economic and service benefits.
According to the US Census Bureau, there are an estimated 10,488
warehouse facilities in the US that provide employment for 577,851
workers.
There is an estimated additional 14,835 mini warehouses and self-storage
units to support the increasing need for warehouses.

Definition
What is a Warehouse?
A warehouse is defined as part of a logistics system which stores
products between the point of origin to the point of being consumed,
while providing information to the management on the cargos status
of item in storage
What is a Store?
A store is a place where cargo is placed for a longer time. Its primary
function is to store the cargo safely and no time limit is indicated.

Primary Functions of a Warehouse

(1) Movement
(a) Receiving
(b) Put-away or transfer
Direct put-away staging & inspecting activities are eliminated
Directed put-away the warehouse management system shall give
directions for where to place the cargo
Batched or sequenced put-away normally placed in zones and later put
into slots/locations
(c) Order picking or cargo selections
(d) Cross docking
(e) Shipping or out-going

Primary Functions of a Warehouse (cont.)

(2) Storage
(a) Fixed locations
(b) Random locations
(c) Zoning
(3) Information Transfer
Management and even customers (for public warehouses),need fast and
accurate inventory information.

Principles of Material Handling in a Warehouse

(1) Principle of safety
(2) Planning principles
(3) Simplification principle
(4) Gravity principle
(5) Space utilization principle
(6) Equipment selection principle
(7) Principle of unit size

Warehouse Quality Performance

Setting up a KPI is a must for warehouse managers to monitor
performance. Among the common areas of concern are:
(1) Put-away accuracy
(2) Picking accuracy
(3) Inventory accuracy
(4) Shipping accuracy

Pallet Storage System

1)

Block Stacking

Rice in bags

Other cargo

Pallet Storage System (cont.)

2)

Stacking frames

Pallet Storage System (cont.)

3)

Single-deep selective pallet racks

Pallet Storage System (cont.)

4)

Double deep rack

Pallet Storage System (cont.)

5) Drive-in rack
Forklifts can drive several pallet
positions for multiple pallet storage.

Pallet Storage System (cont.)

(6)
Drive-thru rack
A drive-thru rack is accessible from both sides of the racks. Pallets can be
loaded at one end and retrieved from the other.

Pallet Storage System (cont.)

(7) Pallet flow rack
Loads are conveyed or
railed from one end of
the coverage lane to
the other.

Pallet Storage System (cont.)

(8) Push-back rack
As load is placed, weight and force pushes back on other loads to create
space for the new load.

Part B: Inventory Management

Inventory
Management
for Goods
inside the
Warehouse

A
Warehouse

Goods
Inside the
warehouse

Relationship between
warehouse and inventory
management.

What Is Inventory?
The quantity of goods held in a specified location at a specific time in an
unproductive state, waiting to be used or sold.
Three other inventory definitions that are important:
(1) Inventory control: the technique of maintaining stock items at predetermined
desired level.
(2) Inventory management: determining the policies that set the goals for the
inventory control system.
(3) Inventory policy: a statement of the companys goals and approach to the
management of inventories.
It normally comprises guidelines with regards (but not limited) to:
(a) What to produce/procure?
(b) What to sell/to stock?
(c) In what quantities?
(d) When to take the appropriate action?

Practical Guide to Inventory Accuracy

(1) Attitude

(2) Process/procedure definition

(3) Employee testing
(4) Standard setting
(5) Accuracy tracking
(6) Accountability
(7) Stock checking

Inventory Cost
Seven types of inventory carrying cost:
(1) Capital investment cost
(2) Storage space cost
(3) Inventory service cost
(4) Inventory risk cost Obsolete & Broken
(5) Inventory depreciation cost
(6) Inventory security cost
(7) Inventory administration cost

Receiving & Inspection of Inventory

Do it right the first time, and then you will get the most accurate record.
Receiving should go through these processes ( depends on the companys
SOP):
(1) Cargo acceptance only via receiving department
(2) Unloading of cargo only at unloading bay
(3) All records must be updated immediately, especially tally in sheet
(4) Procrastination should not happen at all
(5) Delivery Order (or commonly known as DO) should be given to the store
keeper

Receiving & Inspection of Inventory (cont.)

(6) Quality inspection must be done immediately
(7) 100% inspection for critical and expensive item
(8) Random checking for low value cargo
(9) Take photos to set prove
(10) Do test if you think it need one
(11) For heavy cargo, equipment rental or mobilization should be planned
before

Cargo Discharge Procedure

Warehouse operators need to plan how to release or discharge the cargo and do
the following:
(1) Plan your store activity;
(2) All movements must be recorded;
(3) All approvals needs to be sought before the cargo is allowed to leave the premise;
(4) Use standard documents to discharge;
(5) Use material advice notes or transfer forms for third party transactions;
(6) All documents should be complete;
(7) Check cargo quality before discharging, and
(8) Take photos of the cargo as much as possible.

Inventory Control Procedures

Strict observations need to be implemented on the following actions:
1) All transaction should be recorded;
2) Latest inventory should be computerized;
3) Physical inventory count should be the latest;
4) Inventory should be classified (A,B or C) for better control, and
5) Cargo locations should be updated.
Other factors include life cycle of cargo, balance inventory, record keeping,
accuracy of record, safety of the cargo, date received, date discharged,
buyers record, delivery record and balance inventory record.

ABC Analysis
It is the same as Pareto analysis or 80/20 analysis as it talks about how
the big one shall take care of the small one.
ABC Analysis is developed to allow companies to endorse selective
control of the cargo.
Three basic principles to be understood:
(1) The analysis emphasizes annual consumption value and not the unit
cost of the items.
(2) The analysis does not take into consideration the importance of the item.
(3) ABC categorization limits are not uniform but will depend upon the size
of the undertakings, its inventory as well as the number of items
controlled.

Stock take/stock count

Popular reasons to undertake stock count:
(1) To verify the accuracy of the stock records.
(2) To support the record of stock shown in the balance sheet by
physical verification of the cargo.
(3) To identify any possibility of fraud, theft or loss.
(4) To check for any possible weakness in the system for the
custody and control of stock.

Stocktake Procedure
(1) Planning should be drawn up weeks or months earlier and agreed by all
concerned.
(2) Incorporate proper cut-off times.
(3) All stock count personnel concerned must be instructed and briefed
before-hand on their respective duties before the actual day of the stock
take.
(4) Appoint one project manager to control the whole operation.
(5) Stop all activities while stocktaking is in progress.
(6) There should be count teams assembled on the day of the stocktake.

Stocktake Procedure (cont.)

(7) Counters need to understand that they need to count all normal stock
including loose packages and items under inspection. Damaged stocks
should be recorded separately.
(8) The results of the count sheets should be verified on the spot. The
number of total items in the count and in the system should be compared to
see if there are any shortages.
(9) The number in the system and the physical counting should be the same.
(10) Check again if you have found any discrepancies.
(11) Count again if you have doubts.

Stock Take Procedure (cont.)

Tips to Ease Stock Take Activities
(1) Create your warehouse map.
(2) Create your bay plan.
(3) Divide the warehouse into manageable counting areas.
(4) Ship everything you can before the stock count date.
(5) Print and review all discrepancy reports.
(6) Audit how the counters do the stock count.
(7) Record all findings.

Words of Wisdom
Points of Concern
Count! Count! Count!
Inventory tracking is at the heart of warehousing. Never lose track of the
cargo present in the warehouse.
Big organizations are getting more creative in saving cost. Warehousing
and inventory are now commonly accepted in the body of trucks, aircrafts,
containers, etc.
Always record the movement of the cargo. Any lapse/ procrastination shall
lead to countless hours of search and monetary loss.
Always keep the lowest inventory possible.