Procurement & Inventory Mgt
Transcript of Procurement & Inventory Mgt
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ASSIGNMENT
PROCUREMENT, INVENTORY & DISTRIBUTION
PREPARED BY : MOHAN SUBRAMANIAM
I.C : 730122-02-5199
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Table of Contents:
No. Contents Page
1 Assignment Question 2
2 Warehouse Management System 4
3 Objective of Warehouse Management System 6
4 Purpose of Warehouse Management System 8
5 Role of Warehouse Management System Team 13
6 ActivityBased Costing (ABC) 18
7 Refferences 21
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1. Assignment Questions
The effectiveness of warehouse management system (WMS) and related
solutions can have major impact on the bottom line for a distribution operation.
(a) Describe : What is WMS- Warehouse Management System?
(b) Describe : Why a company must implement WMS?
(c) Describe : What can the right WMS Software deliver?
(d) Selecting and implementing the right warehousing and distribution system
requires a blend of operational and IT expertise .Explain.
(e) Activity- based costing (ABC) has proved to be successful tool in the
financial control of warehouse activities. Explain.
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Warehouse Management System
A warehouse management system(WMS) is a key part of thesupply chain and
primarily aims to control the movement and storage of materials withinawarehouse and process the associated transactions, including shipping,
receiving, putaway and picking. The systems also direct and optimize stock
putaway based on real-time information about the status of bin utilization. A
WMS monitors the progress of products through the warehouse. It involves the
physical warehouse infrastructure, tracking systems, and communication
between product stations.[1]
More precisely, warehouse management involves the receipt, storage andmovement of goods, (normally finished goods), to intermediate storage locations
or to a final customer. In the multi-echelon model for distribution, there may be
multiple levels of warehouses. This includes a central warehouse, a regional
warehouses (serviced by the central warehouse) and potentially retail
warehouses (serviced by the regional warehouses).
Warehouse management systems often utilizeautomatic identification and data
capture technology, such asbarcode scanners,mobile computers,wirelessLANs and potentiallyradio-frequency identification (RFID) to efficiently monitor
the flow of products. Once data has been collected, there is either a batch
synchronization with, or a real-time wireless transmission to a central database.
The database can then provide useful reports about the status of goods in the
warehouse.
Warehouse design and process design within the warehouse (e.g.wave picking)
is also part of warehouse management. Warehouse management is an aspect of
logistics andsupply chain management.
http://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Warehousehttp://en.wikipedia.org/wiki/Warehouse_management_system#cite_note-1http://en.wikipedia.org/wiki/Warehouse_management_system#cite_note-1http://en.wikipedia.org/wiki/Warehouse_management_system#cite_note-1http://en.wikipedia.org/wiki/Automatic_identification_and_data_capturehttp://en.wikipedia.org/wiki/Automatic_identification_and_data_capturehttp://en.wikipedia.org/wiki/Barcode_scannerhttp://en.wikipedia.org/wiki/Mobile_computerhttp://en.wikipedia.org/wiki/Wireless_LANhttp://en.wikipedia.org/wiki/Wireless_LANhttp://en.wikipedia.org/wiki/Radio-frequency_identificationhttp://en.wikipedia.org/wiki/Wave_pickinghttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Wave_pickinghttp://en.wikipedia.org/wiki/Radio-frequency_identificationhttp://en.wikipedia.org/wiki/Wireless_LANhttp://en.wikipedia.org/wiki/Wireless_LANhttp://en.wikipedia.org/wiki/Mobile_computerhttp://en.wikipedia.org/wiki/Barcode_scannerhttp://en.wikipedia.org/wiki/Automatic_identification_and_data_capturehttp://en.wikipedia.org/wiki/Automatic_identification_and_data_capturehttp://en.wikipedia.org/wiki/Warehouse_management_system#cite_note-1http://en.wikipedia.org/wiki/Warehousehttp://en.wikipedia.org/wiki/Supply_chain -
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Basic Functions of Warehouse Management
Inventory Management exact to storage bin level
Mapping and control of all goods movements
Monitoring of the processing of these goods movements
Connection to mobile data entry as part of the integrated radio
frequencysolution
Connection to specialist external systems using an interface
WarehouseManagement enables a precise specification of the exact location of a
particular quantity of material and informs you whether this quantity is currently in
a storagebin or on the move.
Warehouse Management uses aspecial document, the transfer order to map andcontrol warehouse movements.When you create a transfer order, the system
determine suitable storagebins to put away or pick stock (we can also manually
specify the same).
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Graphic 1. Warehouse Management Process Diagram
The Obejective of WMS
The objective of a warehouse management system is to provide a set of
computerized procedures for management of warehouse inventory with the goal
of minimizing cost and fulfillment times.
This includes:
A standard receiving process to properly handle a shipment when it
arrives. This process can be individualized to each warehouse or product
type.
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The receipt of stock and returns into a warehouse facility. An efficient
warehouse management system helps companies cutexpenses by
minimizing the amount of unnecessary parts and products in storage.It
also helps companies keep lost sales to a minimum by having enough
stock on hand to meet demand.
Modeling and managing the logical representation of the physical storage
facilities (e.g. racking, etc.). For example, if certain products are often sold
together or are more popular than others, those products can be grouped
together or placed near the delivery area to speed up the process of
picking, packing and shipping to customers.
Enabling a seamless link to order processing and logistics management in
order to pick, pack, and ship product out of the facility.
Tracking where products are stocked, which suppliers they come from,
and the length of time they are stored. By analysing such data, companies
can control inventory levels and maximize the use of warehouse space.
Furthermore, firms are more prepared for the demands and supplies of the
market, especially during special circumstances such as a peak season
on a particular month. Through the reports generated by the inventory
management software, firms are also able to gather important data that
may be put in a model for it to be analyzed.
Alone warehouse management cannot automate the process. It also involves the
combination of business process to be followed along with system to achieve 100%
productivity and accuracy .
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Warehouse Structure With WMS
When you implement the Warehouse Management System (WMS) in a plant,
you define the individual warehouses (high-rack storage, block storage, picking
area, and so on) as storage types within a warehouse complex and group them
together under a warehouse number. As a rule, it is not necessary to define
several storage locations for a plant since you assign the WMS warehouse
number to a storage location from Inventory Management (IM).
It is appropriate to define further storage locations for a plant if other warehouses
(storage types) exist within a plant that is not managed using WMS but with Lean
WM, for example.
In WMS you define storage bins for each of the storage types. In this way, WMS
manages stock information on all materials in the warehouse at storage bin level.
In addition, the stock quantities of the material are managed in Inventory
Management (MM-IM) at storage location level. In order to link the information at
storage location level with the information from the storage bin, assign a
warehouse number to the storage location.
This figure depicts two plants that each manage a storage location using WMS.
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Warehouse number 001 is assigned to storage location 0088 in the first
plant. In warehouse complex 001 there are two storage types.
Warehouse number 001 is assigned to storage location 0088 in the first
plant. In warehouse complex 002, there are three
storage types.
You can also manage stock for several plants in the same warehouse at the
same time. In this case, the same warehouse number is assigned to the storage
locations for these plants.
As a rule, it is a good idea to manage only the stocks of one storage location and
the same plant within a warehouse number. However, you can also manage
several storage locations of one and the same plant within a warehouse number.
For scenarios associated with this structural configuration, see
Storage Locations in TRs, Tos and Posting Changes.
For information on how to link a plant storage location in IM with a warehouse
number in WMS, refer to the Implementation Guide under the path Enterprise
StructureAssignmentLogistics Execution
Assign warehouse number to plant / storage location
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The system uses the links that you create to Inventory Management(IM) to
ensure that certain processes in Quality Management(QM), Product
Planning(PP), and Sales and Distribution(SD) are carried out in the Warehouse
Management System(WMS) for the appropriate warehouse number.
Depiction of the Physical Warehouse in WMS
The warehouse structure in Warehouse Management is hierarchical and consists
of the following elements:
The Warehouse Number
You can define an entire physical warehouse complex in WM using a single
warehouse number.
The Storage Type
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Each of the warehouse facilities or areas that make up the warehouse complex
can be defined as a type of storage area or "storage type" on the basis of its
spatial, technical, and organizational characteristics.
Each storage type is divided into storage sections. A storage section generallyincludes all bins that have certain characteristics in common, such as bins for
"fast-moving items" near a goods issue area.
The Storage Bin
Each storage type and storage section consists of a row of storage spaces that
are referred to in WMS as storage bins. The coordinates of the bins indicate the
exact position in the warehouse where goods can be stored.
The Quant
The quant serves to perform inventory management of a material at the storage
bin.
To depict the setup of your physical warehouse in the system, first define the
warehouse structures in WMS in the Customizing application. We recommend
that you adhere to the following sequence when setting up your warehouse
structure in the system.
1. Define the warehouse number in Customizing under the path Enterprise
StructureDefinitionLogisticsExecutionAssign warehouse
number to plant / storage location
2. Define the storage types in Customizing under the path Logistics
ExecutionWarehouse ManagementMaster Data
Define Storage Type.
3. Define the storage types in Customizing under the path Logistics
ExecutionWarehouse ManagementMaster DataDefine Storage
Type.
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4. Create the storage bins.
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Role of WMS Team
The keyis that this team is truly empowered to make decision regarding
operations and how the WMS needs to work in conjunction with that. In many
cases, however, such a role and clear responsibility doesn't really exist in a WMSimplementation, In those cases, there may be an "executive sponsor" who has
ultimate responsibility for the project's success but isn't really involved in the day
to day effort, and the WMS project manager in the company who usually is
focused on meeting the project's schedule and budget. There may not really be a
single decision maker in terms of all the choices that have to be made in a WMS
implementation.
"This role and person is the one that needs to say in the end, 'Yes, this is the
system I can live with' and 'This is the system that is going to propel us
competitively for the next 10 years, They are the ones that need to make the
calls and ensure operations will work the way they need to."
One critical decision this operational lead needs to make, is when it is time for
the "go live." to use an approach based on "evidence," - does a company have
real evidence that across operations, the system itself, IT interfaces, training, etc.,
it is time to begin running the WMS in the DC.
Every businessman aims to increase profit by way of maximizing efficiency.
Different types ofwarehouse management system software are designed to do
just that by staying on top of storage, as well as shipping and delivery operations.
Below is a list of benefits that a warehouse management system can provide.
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Task Distribution
An efficient warehouse system allows for the even distribution of workload
among warehouse laborers. Tasks are listed and monitored by the supervisor to
ensure that daily operations are carried out as efficiently as possible. If there aremultiple warehouse locations, then the supervisor can also reshuffle the workers
depending on which branch is most in need of manpower.
Controlled Movement and Storage of Items
Having integratedwarehouse management systems is crucial, especially if
numerous transactions are processed and handled every day. One of the biggest
advantages of such technology is that it paves the way for a smooth transition
from the production phase to the arrangement of orders, down to the delivery of
products. All these are recorded and tracked through the warehouse database.
This way, supervisors are also able to monitor and justify the costs for operating
the warehouse.
Less Shipping Inaccuracies
Warehouse management systems are chiefly designed to ensure that the right
items and quantities are shipped to the right customers. Having a validation
system integrated in the warehouse management software eliminates thepossibility of losing profit caused by wrong deliveries. Consequently, the
relationship between the company and its clients is further strengthened by
efficient order fulfillment.
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Improved Effectiveness in Bin Location Supervision
The bigger the warehouse (and the more branches it has), the more necessary
bin location supervision becomes. Effectively managing the location and
arrangement of warehouse bins in one database saves time and effort for
workers and supervisors alike. With an integrated system in place, it will be
easier to track the codes and locations of items in the inventory.
It is crucial that distributors running their own warehouses are properly informed
of the advantages of havingwarehouse software from providers like Scan for
Mas. Not only will it generate more profit by way of increased efficiency, but can
also lessen costs and boost overall customer satisfaction.
Warehouse management system software (WMS) aims to supervise and control
the flow and storage of stocks in a warehouse. It involves tracking stocks to
monitor quantity, location, and unit of measures. It also includes the integration of
these factors for storing positions, picking positions, and the extent of how to
execute each of them.
No two WMS software are created alike, although they have similar rudimentary
functions: track what goes in and what goes out without any redundancy. More
advanced versions provide real-time analysis and seamless integration into the
companys existing business software. Some are even able to provide Radio -
Frequency Identification (RFID) and voice-activated commands for easier and
more accurate stock handling.
The Pros of WMS
Theres a right way to tackle warehouse inventory, and it takes more than
knowing whats in there. A good WMS anticipates your needs, emphasizes
trends, and allows you to examine the business from various perspectives to
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ensure that you are doing what needs to be done. And because WMS software
gets better with each successive version, it can make warehouse management
more efficient than ever before.
Warehouse inventory software can help you in 5 ways, namely: 1) quicker orderreplies; 2) reduced error rates; 3) reduced paperwork and delays; 4) more
efficient use of warehouse space; and 5) improved customer service. To put it
simply, a WMS solution means you are raising your warehouse to a whole new
level of operation.
The Cons of WMS
As with any software system, there are some drawbacks and challenges that
come with the implementation of WMS. These problems are nothing major, but
some ground-level changes need to be done. Its not unusual for a company to
restructure its whole operation just to accommodate WMS; and they dont come
cheap. The initial cost of WMS systems will weigh heavily on your companys
finances.
WMS systems are also data-dependent and regulative in nature. A WMS comes
with highly-specialized functions which provide management with relevant control
over inventory operations. Once installed, the measurements to which it must
operate must be put in place. To make it effective, a lot of testing, man-power
training, and continuous evaluation must be done, and this takes around 6
months to 2 years, depending on the stocks and size of a warehouse.
Awarehouse management software system like Scan for MAS can have sizeable
benefits, especially if you want to become a leading company in your industry. By
implementing WMS, you demonstrate your companys readiness to compete intodays aggressive supply market.
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How to choose a WMS System from out the cluttered marketplace?
There are many companies that provide software solutions for 3PL
providers. However, none of them have developed the industry insight like
SphereWMS. As a result, their WMS system truly adds value to anorganizations business without heavy investment.
They speak your language:SphereWMS developed its WMS system with your
company and clients in mind. Their WMS system allows you to have greater
visibility into your inventory and processes which leads to better decision
making. SphereWMS developed the best WMS system to help you deliver the
top notch customer service. Because, SphereWMS knows that reputation and
service are assets that you can never lose track of.
Dedicated Management Expertise:Sphere WMS brings an excellent
leadership team to help your business succeed. Their experience in the logistics
and supply chain industry has led to the development of the best WMS system in
the industry. With experience working with industry leaders such as Level 3
Communications, IBM, Hyundai, and Sprint, the SphereWMS team developed
the insight and expertise to develop cutting edge a WMS system and solution.
Online and On-call, all the time:The best part of this WMS system is it is
available 24/7. Because the WMS system is a fully hosted, web-based product
you wont have to worry about your servers and IT infrastructure crashing. The
WMS system is also supported by excellent technicians and customer support
after hours. SphereWMS team is available via telephone, email, or the support
portal on the WMS system. When you need the critical elements of your WMS
system to work, SphereWMS will be there to ensure youre able to deliver on
your promises.
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ACTIVITY -BASED COSTING ABC
Definition:Activity Based Costing is a term describing the accounting
breakdown of overhead expenses for a particular product according to each
activity that is involved in the manufacturing or handling of the product. This is avery specific retail or manufacturing accounting method that requires the
accurate tracking and input from each person and process that contributes to the
product in any way.
Activity-based costing systems, known as ABC systems in practice, are not
compliant with generally accepted accounting principles. However, this does not
mean that ABC systems aren't useful. ABC systems provide valuable information
for managerial decision-making. However, knowing the similarities between ABC
systems and GAAP-compliant systems can help you decide if the extra expense
of keeping two systems is worthwhile for your small business.
Manufacturing Costs
One of the major reasons that ABC is not compliant with GAAP is that ABC
systems do not assign all manufacturing costs to products. Organization-
sustaining costs, such as expenses related to factory security, heating and air
conditioning and building rent, will be incurred regardless of the level of
production. As such, ABC systems do not assign these costs to products. The
thinking here is that if a cost doesn't change based upon what is going on in the
factory, then the cost isn't relevant to decision-making. While this makes sense
from a managerial decision-making standpoint, this is in violation of GAAP.
Non-manufacturing Costs
ABC systems assign some specific non-manufacturing costs to products, even
though this process is not allowed under GAAP. ABC principles dictate that all
costs that are relevant to the product should be included in product cost. For
example, if a custom product requires additional phone support staff to take
customer orders, then this cost should be included as part of the product cost.
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Even though this isn't a manufacturing cost, if the phone personnel did not take
these calls, there would be no product orders. In addition, if the company
discontinued the custom product, the phone employees could be eliminated.
Cost Pools
In contrast with traditional costing systems, ABC systems use multiple cost pools
to allocate overhead to products. Cost pools are "buckets" where costs are
accumulated to be assigned to products. These cost pools are related to specific
activities that occur in the company. For example, a small business may produce
more than one product and need to set up machinery when switching from
manufacturing one product or another. The overhead costs incurred due to
switching products would be accounted for as part of the job setup cost pool. The
disparity between this method and traditional costing systems is that traditional
costing systems use a plant-wide or departmental rate to allocate all overhead
costs as part of one large "bucket."
Traceable Costs
Traditional costing systems and ABC systems treat traceable costs in the same
manner. Traceable costs, those costs that can be easily and cost-effectively
directly traced to products, are directly applied to products under both systems.
For small businesses, these costs are most often related to materials and labor
costs. For example, if an employee works 8 hours at a rate of $20 per hour and
manufactures a batch of 160 products, each product would be traced $1 of this
employee's labor cost.
Cost reduction and analysis
Understanding your cost is a vital prerequisite of being able to reduce cost. An
important feature of activitybased costing is providing this knowledge.
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But this is definitely not the only aspect, maybe not even the most important one.
Other ways of activitybased management in this category are:
ge on resource utilization
- and external understanding of departmental cost drivers
-if analysis
Within different types of businesses and business functions, ABC can be used to
gain knowledge on resource utilization, for example:
In libraries, activity-based costing is used to assign cost to the different types of
loaning, like internal borrowers versus interlibrary loans. It gives library
management more understanding on how their scarce resources are being
utilized. For hospitals it can be used in the same way for different types of patient
services, in banks for client services.
-based costing to improve cost estimation
and, as mentioned before, for a customer/product profitability study. The last
function can also be used for other businesses functions like logistics.
A specific concern for departments/businesses is that customers, corporate
management and other departments within the business, do not have a clear
understanding on how (order) behavior impacts the efficiency and cost of the
processes. Activity-based costing can help to build this understanding by:
om activity-based costing for what-if analysis to show the
cost impact of changes in for instance batch size.
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Presenting and explaining the cost implication of using a particular order type
and/or transportation mode. E.g. based on ABC it can be explained why an
emergency order or air shipment is more expensive to pick/pack then a regular
order.
The information can also benefit customers because they can be advised on how
to reduce their own cost.
An additional aspect is that the outcome of ABC can be used for (internal)
benchmarking of the efficiency of activities. For example by comparing the tariff
per activity between different sites of the same business.
This can only be applied when it is assured that the basic principles of the
activity-based costing models are exactly the same. Meaning that the cost
categories and the cost drivers used, need to be exactly aligned
REFFERENCES
(a)http://www.sciencedirect.com/science/article/pii/0925527394000859
(b) http://retailindustry.about.com/od/retaildefinitionsab/g/Definition-Meaning-
Activity-Based-Costing-Retail-Glossary-Business-Terms-Dictionary.htm
(c)http://www.scdigest.com/ontarget/11-04-20-1.php?cid=4462
(d)http://www.scdigest.com/ontarget/11-04-20-1.php?cid=4462
(e)http://www.wikipedia.com
(f) http://quickmba.com
(g) IGE notes
http://www.sciencedirect.com/science/article/pii/0925527394000859http://www.sciencedirect.com/science/article/pii/0925527394000859http://www.sciencedirect.com/science/article/pii/0925527394000859http://retailindustry.about.com/od/retaildefinitionsab/g/Definition-Meaning-Activity-Based-Costing-Retail-Glossary-Business-Terms-Dictionary.htmhttp://retailindustry.about.com/od/retaildefinitionsab/g/Definition-Meaning-Activity-Based-Costing-Retail-Glossary-Business-Terms-Dictionary.htmhttp://retailindustry.about.com/od/retaildefinitionsab/g/Definition-Meaning-Activity-Based-Costing-Retail-Glossary-Business-Terms-Dictionary.htmhttp://retailindustry.about.com/od/retaildefinitionsab/g/Definition-Meaning-Activity-Based-Costing-Retail-Glossary-Business-Terms-Dictionary.htmhttp://www.scdigest.com/ontarget/11-04-20-1.php?cid=4462http://www.scdigest.com/ontarget/11-04-20-1.php?cid=4462http://www.scdigest.com/ontarget/11-04-20-1.php?cid=4462http://www.scdigest.com/ontarget/11-04-20-1.php?cid=4462http://www.scdigest.com/ontarget/11-04-20-1.php?cid=4462http://www.scdigest.com/ontarget/11-04-20-1.php?cid=4462http://www.wikipedia.com/http://www.wikipedia.com/http://www.wikipedia.com/http://quickmba.com/http://quickmba.com/http://quickmba.com/http://www.wikipedia.com/http://www.scdigest.com/ontarget/11-04-20-1.php?cid=4462http://www.scdigest.com/ontarget/11-04-20-1.php?cid=4462http://retailindustry.about.com/od/retaildefinitionsab/g/Definition-Meaning-Activity-Based-Costing-Retail-Glossary-Business-Terms-Dictionary.htmhttp://retailindustry.about.com/od/retaildefinitionsab/g/Definition-Meaning-Activity-Based-Costing-Retail-Glossary-Business-Terms-Dictionary.htmhttp://www.sciencedirect.com/science/article/pii/0925527394000859