A Project Report

On

Expenditure Analysis and Control in Warehouse (Spare Parts)

At

ROSHAN MOTORS PVT. LTD - JAIPUR

Under the guidance of

ANKITA SHARMA

Submitted to

Accman Institute of Management

Submitted By:Mohd.Arish

ACKNOWLEDGEMENT

I would like to express my profound gratitude to Mr. M. P. MISHRA

(External Guide, Assistant general Manager, TATA Motors ltd.), under whose guidance;

I gained deeper insights into the subject matter. His constant support provided the right

direction to my analysis and helped me understand the nuances of the subject.

I express my heartfelt gratitude to Mr. DEVENDRA KUMAR SAHRMA

(Senior accountant, ROSHAN MOTORS PVT. LTD. JAIPUR) for his support and

guidance and provided me valuable advice during my project.

I feel immense pleasure to express my sincere gratitude to Mr. RAVI

SHARMA (Assistant manager, Finance), for giving me an opportunity to work with Tata

Motors as a project trainee.

A special thanks goes to my internal guide Mrs. JYOTI JAIN (Coordinator of

the Department), who is most responsible for helping me complete the writing of this

report as well as the challenging research that lies behind it. Without their encouragement

and constant guidance I could not have finished this report.

I would like to deeply thank the various people who, during the 2 months in

which this endeavor lasted, provided us with useful and helpful assistance. Without their

care and consideration, this project report would likely not have matured.

Last but not least; I would like to express my sincere gratitude to all friends and

operators working in ROSHAN MOTORS PVT. LTD.,JAIPUR, who aided me during

the duration of my whole project in various direct and indirect ways.

PRAFACE

In classroom studies main concentration is on theoretical portion while the main objective of this project is to impart practical knowledge to collage going professional students. so that whenever in future they get opportunity to work in companies, they can can work with full confidence, also they can become familier with such kind of atmosphere.

In today’s competitive scenario, Expenditure control plays a major role. I have chosen Expenditure analysis and control in warehkouse in order to get practical experience i.e. to know about various expenditure and how they can can be control, explain them the motto behind the survey and convince them to chat with me and give information about quality and brand image of Tata motors in market. the project was assigned to me by Mrs. Jyoti jain. my topic is “ expenditure analysis and control in warehouse ( spare parts ).” my area of survey is :- JAIPUR at Roshan motors pvt. limited, V.K.I.

sandeep shyam sharma

Sr.No Content Page No.

1 Executive Summary

2 Title, objective & scope of Project

3 Company Profile

4 Theoretical Background

5 Research Methodology

6 Data Analysis

7 Findings

8 Limitations

9 Recommendations

10 Conclusion

11 Bibliography

1. Executive Summary (introduction of topic)

Gradual changes have been occurring in the warehousing and transporting sector as

companies are mainly concentrating to set up heavy supportive warehouses.

Trends have been changing in this sector for last seven years. After the expansion of

telecom and communication systems, it has become a major problem of transporting

because the finished goods like phone and other equipments have to be stored in good

condition.

The growth of the logistics industry has a direct correlation to the growth of overall GDP.

Logistics as a percentage of GDP is about 13 per cent. However, that is for the overall

GDP.

Spare-parts logistics is frequently viewed as a showcase field. Despite the growing

variety of products and their individual parts, spare parts must frequently be provided in

after-sales service on a short-notice and flexible basis. In the process, special demands

are placed on both the supplier and the recipient of spare parts.

The spare-parts service is becoming increasingly important to companies because a large

share of after-sales revenues is generated with spare parts and services related to spare-

parts logistics. In addition to spare parts in the current primary product Primary product

line, this business also includes spare parts for out-of-date products that must remain

available as a result of guarantees and maintenance contracts.

A crucial competitive factor is that the primary product Primary product and the

provision of spare parts to customers should not be perceived as being separate entities.

Rather, the customer demands a full range of services that also include maintenance and

technical assistance to go along with the provision of spare parts.

2.

Title: Expenditure Analysis and Control in Warehouse (Spare Parts)

Objective:

1. To study in detail all the expenses and costs that are incurred in the

operations of the warehouse activities.

2. To find the various ways in which these costs/expenses can be reduced or

controlled.

Scope:

1. To genrate new ways to control the expanditure.

changE

3. COMPANY PROFILE

TATA MOTORS PROFILE

Tata Motors Limited is India's largest automobile company, with revenues of Rs.

35651.48 crores (USD 8.8 billion) in 2007-08. It is the leader in commercial vehicles in

each segment, and the third largest in the passenger vehicles market with winning

products in the compact, midsize car and utility vehicle segments. The company is the

world's fourth largest truck manufacturer, and the world's second largest bus

manufacturer.

The company's 22,000 employees are guided by the vision to be "best in the

manner in which we operate best in the products we deliver and best in our value

system and ethics."

 

Established in 1945, Tata Motors' presence indeed cuts across the length and

breadth of India. Over 4 million Tata vehicles ply on Indian roads, since the first rolled

out in 1954. The company's manufacturing base in India is spread across Jamshedpur

(Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh) and Pantnagar (Uttarakhand).

Following a strategic alliance with Fiat in 2005, it has set up an industrial joint venture

with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and Tata

cars and Fiat power trains. The company is establishing two new plants at Dharwad

(Karnataka) and Singur (West Bengal). The nation-wide dealership, sales, services and

spare parts network comprises over 3500 touch points; Tata Motors also distributes and

markets Fiat branded cars in India. 

In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, which

India and the world have been looking forward to. A development, which signifies a first

for the global automobile industry, the Nano brings the comfort and safety of a car within

the reach of thousands of families. When launched in India later in 2008, the car will be

available in both standard and deluxe versions. The standard version has been priced at

Rs.100, 000 (excluding VAT and transportation cost).

Designed with a family in mind, it has a roomy passenger compartment with generous leg

space and head room. It can comfortably seat four persons. Its mono-volume design will

set a new benchmark among small cars. Its safety performance exceeds regulatory

requirements in India. In terms of overall pollutants, it has a lower pollution level than

two-wheelers being manufactured in India today. The lean design strategy has helped

minimise weight, which helps maximise performance per unit of energy consumed and

delivers high fuel efficiency. The high fuel efficiency also ensures that the car has low

carbon dioxide emissions, thereby providing the twin benefits of an affordable

transportation solution with a low carbon footprint.

Besides product development, R&D is also focussing on environment-friendly

technologies in emissions and alternative fuels. Through its subsidiaries, the company is

engaged in engineering and automotive solutions, construction equipment manufacturing,

automotive vehicle components manufacturing and supply chain activities, machine tools

and factory automation solutions, high-precision tooling and plastic and electronic

components for automotive and computer applications, and automotive retailing and

service operations.

True to the tradition of the Tata Group, Tata Motors is committed in letter and

spirit to Corporate Social Responsibility. It is a signatory to the United Nations Global

Compact, and is engaged in community and social initiatives on labour and environment

standards in compliance with the principles of the Global Compact. In accordance with

this, it plays an active role in community development, serving rural communities

adjacent to its manufacturing locations. With the foundation of its rich heritage, Tata

Motors today is etching a refulgent future.

PRODUCTS

PASSENGER AND UTILITY VEHICLES

PASSENGER CARS SEGMENT ALSO INCLUDE

1. Indigo XL 2. Indica V2 3. Indica Xeta 4. Indica Turbo

5. Fiat Cars 6. SAFARI 7. SAFARI

DICOR 8. SUMO VICTA

INDICAINDIGO

SUMO GRANDE

BUSES1. Star bus 2. Globus

Military vehicle

1. Tata 407 Troop Carrier, available in hard top, soft top, 4x4, and 4x2 versions

2. Tata LPTA 713 TC (4x4) 3.Tata LPT 709 E

4. Tata SD 1015 TC (4x4) 5.Tata LPTA 1615 TC (4x4)

6. Tata LPTA 1621 TC (6x6) 7.Tata LPTA 1615 TC (4x2)

COMMERCIAL VEHICLES

1. Tata Ace 2. Tata Ace Magic

3. Tata TL/Telcoline/207 DI Truck 4.Tata 407

5.Tata 709 E 6.Tata 1109 (Intermediate truck)

7. Tata 1510/1512 (Medium bus) 8.Tata 1610/1616 (Heavy bus)

9.Tata 1613/1615 (Medium truck) 10.Tata 2515/2516 (Medium truck)

13.Tata Novus (Heavy truck) 14.Tata Winger

Concept vehicles

1. 2000 Aria Roadster 2. 2001 Aria Coupe

3. 2002 Tata Indiva 4. 2004 Tata Indigo Advent

5. 2005 Tata Xover 6. 2006 Tata Cliffrider

7. 2007 Tata Elegante

THE MOST AWAITED PEOPLE’S CAR

NAINO(LAKHTAKIA)

MILE STONES

1945 Tata Engineering and Locomotive Co. Ltd. was established to manufacture

locomotives and other engineering products.

1948 Steam road roller introduced in collaboration with Marshall Sons (UK).

1954 Collaboration with Daimler Benz AG, West Germany, for manufacture of

medium commercial vehicles. The first vehicle rolled out within 6 months of

the contract.

1959 Research and Development Centre set up at Jamshedpur.

1961 Exports begin with the first truck being shipped to Ceylon, now Sri Lanka.

1966 Setting up of the Engineering Research Centre at Pune to provide impetus to

automobile Research and Development.

1977 First commercial vehicle manufactured in Pune.

1985 First hydraulic excavator produced with Hitachi collaboration.

1993 Joint venture agreement signed with Cummins Engine Co. Inc. for the

manufacture of high horsepower and emission friendly diesel engines.

1998 Tata Safari - India's first sports utility vehicle launched.

2 millionth vehicle rolled out.

Indica, India's first fully indigenous passenger car launched.

2003 On 29th July, J. R. D. Tata's birth anniversary, Tata Engineering becomes

Tata Motors Limited.

3 millionth vehicles produced.

2004 Tata Motors and Daewoo Commercial Vehicle Co. Ltd. sign investment

agreement

Tata Motors completes acquisition of Daewoo Commercial Vehicle

Company

Tata Motors lists on the NYSE

2005 Tata Motors rolls out the 500,000th Passenger Car from its Car Plant Facility

in Pune

Branded buses and coaches - Starbus and Globus - launched

Tata Ace, India's first mini truck launched

Tata Motors wins JRD QV award for business excellence.

2006 Tata Motors vehicle sales in India cross four million mark

Tata Motors first plant for small car to come up in West Bengal

2007 Tata Motors' integrated Customer Relationship Management (CRM)- Dealer

Management System (DMS) initiative crosses the significant milestone of

covering 1000 locations in India and abroad.

Tata Motors introduces Magic & Winger - creates new segments in urban

and rural passenger transportation.

Organisational structure: -

TATA MOTORS: ORGANIZATIONAL STRUCTURE

CHAIRMAN

EXECUTIVE DIRECTOR

VICE-PRESIDENT

GENERAL MANAGER

DEPUTY GENERAL MANAGER

ASSISTANT GENERAL MANAGER

DIVISIONAL MANGER

SENIOR MANAGER

MANAGER

DEPUTY MANAGER

ASSISTANT

ENGINEER

SUPERVISOR

OPERATOR

BOARD OF DIRECTORS

EXECUTIVE GRADE

MANAGEMENT GRADE

JAIPUR PLANT: -

ROSHAN Motors began its operations in the JAIPUR- V.K.I. industrial area in

1996, when the company acquired the Investa Machine Tool Company in Chinchwad and

simultaneously set-up a Press Tool Division in VKI .

Tata Motors, jaipur acquired 376 acres of lease land in Vishwa karma industrial,

126 acres free hold land in Chinchwad industrial area and 387 acres free hold land as

residential area in Pimpri. The Pune plant has successfully carried out the challenging

task of designing, manufacturing and assembling indigenously the new heavy vehicles

that enable to service much larger market. Many of the aggregates of the commercial

vehicles are also made in Pune. The company also entered in the MUV’s market; TATA

Sumo, TATA Mobile, TATA Safari, TATA Sierra, TATA Estate.

Tata Motors has also launched the first all indigenous passenger car in the small

car section viz. 'Indica'. This is its first experiment in passenger car manufacturing. It is

currently involved in the development of a car for the entry-level segment as promised by

Mr.Ratan Tata. The car aspires to be the first car in India in the price range of Rs.1.5

lakhs.

JAIPUR PLANT

Sr No. Location Area (acres)1 Pimpri Industrial Area MIDC 380.442 Chinchwad Industrial Area MIDC 126.083 Pimpri Residential Area 396.724 Maval Foundry Industrial Area 19.485 Chikhli Industrial Area (K-Block) 188.06

TOTAL AREA OCCUPIED 1110.78

PASSENGER CARS: -

COMMERCIAL AND SPORT UTILITY VEHICLES: -

Tata Indica Tata Indigo

Tata Safari Tata Sumo Tata 207DI

Products Of TATA Motors

LIGHT COMMERCIAL VEHICLES:

MEDIUM COMMERCIAL VEHICLES : -

HEAVY COMMERCIAL VEHICLES: -

Tata 407SFCTata 709SFC

Tata 1615LPT Tata 1613cTurbo Tata 2516cLPT

Tata 3015c LP Tata 3516cTurbo Tata 4021cTurbo

1.2 BLOCKS:The TATA Motors Pune plant has been divided into different blocks to achieve the

proper sequencing in the production. The blocks are divided as given below:

HR: Human Resource department

ERC: Engineering Research Center

A Block: Training division

B Block: Production Engineering

C Block: Transmission shop

D Block: Truck chassis and Engine shop

E Block: Press, Paint, Frame assembly shop

H Block: Special production shop, assembly for 407/709

I Block: Administration Centre

J Block: MLJV, SUV and Pick-up vehicle factory

K Block: Passenger car plant

MISSION SATAEMENT OF TATA MOTORS LTD.:

Providing superior value in all products & gaining customer loyalty by

measuring, creating & maintaining relation with customer.

Achieving significant presence in passenger car market with range of

products, which will include a low cost small car having diesel option to

meet need of Indian consumer.

Achieving increased market shares in all segments of commercial vehicles

though the introduction of wider range of vehicle of high quality & enhance

features resulting in lower operation cost.

Partnering to elevate supplier vision & also that of dealers to see Telco’s

consumer as, their own, to share the goal of higher quality.

Being caring & supporting corporate criteria, paying attention to create that

quality of life required developing strong communities in which we operate.

3.4 VISION & Logo OF TATA MOTORS LTD.:

VISION, COMMITMENT AND FORTITUDE:

As much an institution as it is a business conglomerate, the Tata group is unique in more

ways than one. Established by Jamsetji Tata in the second half of the 19th century, the

group has grown into one of India’s biggest and most respected business organizations,

thanks in no small part to its entrepreneurial vision, its commitment to ideals that put

people before profits, and its fortitude in the face of adversity.

Logo of TATA MOTORS LTD.:

Introduction to Shared Services

The market in which multinational companies operate is characterised by globalisation

merges, acquisitions, and consolidation requiring companies to standardize operations to

stay competitive. An effective way of keeping costs down and improving efficiency is by

moving certain functions to one central location.

Centralisation is only half the story. An increasingly popular an effective way to meet this

challenge and achieve sustainable benefits is for companies to set up a Shared Service

Centre.

‘Shared Services is a collaborative strategy in which a subset of existing business

functions are concentrated into a new, semiautonomous business unit that has a

management structure designed to promote efficiency, value generation, cost savings and

improved service for internal customers of the parent corporation, like a business

competing in the open market.’ - By Bryan Bergeron.

Shared Service Centres (SSCs) began life in the 1980s, typically to process high volume,

low value transactions for the finance functions. They are referred to as Shared Services,

because their activities are shared by units across entire organizations, instead of similar

services being duplicated in each unit.

Aims of Shared Services are to

Enhance corporate value;

Focus on partner service and support;

Lower costs and raise service levels;

Make the best use of investment in technology;

Focus on continuous improvement;

Harmonize and standardize common business processes to reduce

Duplications;

Transfers business units non-core activities in to shared service units.

The Potential Benefits of Shared Services are numerous and can potentially

benefit every type of Business. From the parent corporation’s perspective, Shared

Services promises are:

Reduced Cost: There is constant pressure from internal corporate clients to

provide cost effective products and services.

Improved Service: The Shared business unit’s customer-oriented focus should

result in better service to internal customers, than typical in-house services.

Fewer distractions from core competencies activities: With back office and

other non-critical activities handled by Shared Services, the management of the

parent company is free to focus the company on its core competencies.

A potential for creating an externally focused profit center: At one end of the

spectrum, a business unit is following the Shared Services model can be operated

as a nearly autonomous entity, with other paying outside clients.

From the perspective of Shared Business unit, the shared services model promises:

Increased efficiencies: Standardization of processes and applying

technologies where appropriate can provide improved quality of services at

comparable or lower prices.

Decreased personnel requirements: With the ability to concentrate and

focus resources for a particular purpose in a shared business unit, fewer

employees generally needed to provide same results.

Improved economies of Scale: Like a traditional centralised approach,

shared services concentrates purchasing and other formerly dispersed

business activities, resulting in greater buying power and greater

concentration of specialised resources, such as specialist in certain aspects

of accounting. This concentratio0n allows for increased economies of scale,

compared to the original corporate structure.

Major limitations of Shared Services:

Need to create a base line: In order to determine if the shared services model is

working, its necessary to establish a base line, in terms of current cost, customer

service & efficiency as well as detail specification of what is currently done &

what needs to be delivered.

Inevitable corporate culture shock: The loss of co-workers through downsizing,

the new focus on customer service & new reward & reporting structure will take

their toll on corporate culture, often resulting initially in a drop in efficiency.

There is a minimum Company size: The larger the company, the more

distributed & diffuse the processes & the more duplication of effort, the more

likely the shared services model is applicable to the company.

Loss of Control: Moving to a shared services model means that management of

the parent organisation has to give some control. Employees of the shared

business unit must become customer focussed as well as responsive to the

business units needs.

New training requirements: Retained employees of the shared business unit will

likely need training in the nuances of customer service & total quality

measurement principles.

Legal implications: Detail service level agreements & strong performance audits

are required to keep the shared services model on track.

Need for new accounting practices: Chargeback practices that details how the

shared business unit is to be reimbursed for services rendered have to be

established.

Use of SAP in TATA MOTORS

Before implementing the SAP ERP Solution, there were several homegrown applications

that managed all of the company’s IT requirements. Since they were developed over long

periods of time, they were on multiple platforms and hence difficult to merge. The

biggest drawback of the legacy applications was that they were function and location

specific and were built on local and individual perception of needs. Common and

rationalized processes and practices across all organizational units were not enforced.

Therefore, managing functions like HR, sales and finance across three manufacturing

units spread across the country and their corporate office was tedious and time

consuming. Integrated functions like materials management and payment processing

were separate entities, causing delays in individual transactions. This led to unnecessary

increase in overhead costs and duplicated efforts at each unit. Tata Motors soon

understood that the need of the hour was a unified real time database that gave up-to-date

information to all their stakeholders - both internal and external. They had to move from

their legacy decentralized platforms into a consolidated enterprise platform and

rationalize the business processes across the various units. This would give them an

enterprise perspective both across process and IT infrastructure. The company could then

serve their customers much better and faster, even while reducing operational costs and

cutting manufacturing cycle times.

They decided to go in for the SAP ERP Solution, which provided them all the

answers and much more. The SAP Solution would enable them to improve business

Continuity by unifying the database and functions across the country into one single

entity. It would no longer require any location-specific expertise and thus be much

easier to maintain.

With the SAP solution, customization and upgradation costs could be lowered. Risks,

which emanate from attrition or change of guard in the company, would also be

minimized.

Implementation of the SAP ERP Solution.

Tata Motors outsources their IT to Tata Technologies, which is their 100% subsidiary

company. So Tata Technologies became their implementation partner. SAP India also

organized some consulting for them, which had consultants from both India and abroad.

In 1997, when the seed of implementation was sown, the WAN infrastructure in India did

not permit a single server implementation. Hence a distributed server implementation was

done in stages over a period of two years between 1998 and 2000. The version used was

3.1H. In August 2003, they moved over from SAP 3.1H to SAP 4.6C on a single server

platform. There are 3500 users across the country. Once SAP was implemented,

rationalization of several processes was done extensively. Various business processes like

materials, finance, logistics, etc. were stripped down to their basic components and a lot

of re-engineering had to be done, as all these processes became location-independent.

Tata Motors also opted for the standard cost functionality, which was a significant

business process change for them.

Benefits

With the SAP ERP Solution in place, Tata Motors has experienced significant benefits in

productivity and cost control. The number of servers as well as the number of different

applications run on them has been greatly reduced. The disaster recovery management is

being done only for one entity rather than for every application. Non-value-add activities

have been lowered. The implementation of a single SAP instance forced a much required

change in the organization. A BPR to achieve uniform processes with business users

talking the same language was the outcome.There is a significant reduction in inventories

and better control over receivables and other credit control. A shared services platform

has also been created for IT and shared financial services.

Currently, they are exploring the possibility of a shared services platform for HR too.

There has been a reduction of almost 2 weeks time in financial consolidation. The

statutory compliance of quarterly closing of books and audit has been very largely

facilitated by SAP. Compliance has thus now become more structured and easier to

manage. The speed and granularity of cost data availability is a big improvement. The

richness of analytical data using BW has provided enormous benefits. SAP® SRM has

provided a seamless integration with vendors.The biggest benefit has been the large

unified database for the entire enterprise. “Now anyone across the enterprise can just look

in and find out what customers we have, who are our suppliers and vendors, what prices

we offer, etc. very easily. It brought a synergy in purchasing by strategically sourcing

critical components for the entire organization. This resulted in strategic partnering with

vendors with volume discounts,” says Mitra.

“With the Company being listed in the New York stock exchange, SOX compliance

becomes mandatory. Without SAP, SOX compliance would have been extremely

difficult with the large and fragmented spread of legacyapplication.” adds Probir

Mitra.

SAP Solution has helped Tata Motors serve their customers better and meet all their

needs. Since informationis now on a real-time mode, they are able to quickly respond to

their customers, vendors and suppliers demands. “Previously, we had to pick up data

from four different locations and then consolidate them before you could update your

customer. Now, we have up-to-date information about the customer right up to his last

transaction,” says Mitra.

Future Plans

Tata Motors is now a satisfied customer of SAP - they have the largest deployment of the

SAP Solution in the automotive industry, considering the spread of functionalities they

use. They are keeping abreast of all the new developments and ensure that the

applications they run commiserates with the SAP enhancements. They would definitely

choose SAP for their future plans too.

“Our experience with SAP has been very good. We are consistently looking to add new

functionalities to our existing suite of coverage,” says Mitra. Tata Motors has been able

to achieve enterprise integration, a high productivity gain and also build a stronger,

enduring relationship with its customers, thanks to the SAP ERP implementation. Thus,

the company has not only retained its leadership in India but has also been able to enlarge

its footprint in the global automotive industry.

4. Theoretical Background

Introduction to WarehouseA warehouse is a commercial building for storage of goods. Warehouses are used by

manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc.

They are usually large plain buildings in industrial areas of cities and towns. They come

equipped with loading docks to load and unload trucks; or sometimes are loaded directly

from railways, airports, or seaports. They also often have cranes and forklifts for moving

goods, which are usually placed on ISO standard pallets loaded into pallet racks.

Some warehouses are completely automated, with no workers working inside. The pallets

and product are moved with a system of automated conveyors and automated storage and

retrieval machines coordinated by programmable logic controllers and computers running

logistics automation software. These systems are often

installed in refrigerated warehouses where temperatures are

kept very cold to keep the product from spoiling, and also

where land is expensive, as automated storage systems can

use vertical space efficiently. These high-bay storage areas

are often more than 10 meters high, with some over 20 meters high.

The direction and tracking of materials in the warehouse is coordinated by the WMS, or

Warehouse Management System, a database driven computer program. The WMS is used

by logistics personnel to improve the efficiency of the warehouse by directing putaways

and to maintain accurate inventory by recording warehouse transactions.

Traditional warehousing has been declining since the last decades of the 20th century

with the gradual introduction of Just In Time (JIT) techniques designed to improve the

return on investment of a business by reducing in-process inventory. The JIT system

promotes the delivery of product directly from the factory to the retail merchant or from

parts manufacturers directly to a large scale factory such as an automobile assembly

plant, without the use of warehouses. However, with the gradual implementation of

offshore outsourcing and offshoring in about the same time period, the distance between

the manufacturer and the retailer (or the parts manufacturer and the industrial plant) grew

considerably in many domains, necessitating at least one warehouse per country or per

region in any typical supply chain for a given range of products.

Recent developments in marketing have also led to the development of warehouse-style

retail stores with extremely high ceilings where decorative shelving is replaced by tall

heavy duty industrial racks, with the items ready for sale being placed in the bottom parts

of the racks and the crated or palletized and wrapped inventory items being usually

placed in the top parts. In this way the same building is used both as a retail store and a

warehouse.

Modern warehouses are also used at large by exporters/manufacturers as a point of

developing retail outlets in a particular region or country. This concept reduces the end

cost of the product to the consumer and thus enhance the production sale ratio.

Warehousing is an age old concept which can be used as sharp tool by original

manufacturers to reach out directly to consumers leaving aside or bypassing importers or

any other middle agencies or person.

Warehousing

The warehousing function is a vital part of many organizations: industrial concerns,

public and private utility undertakings, agricultural enterprises, municipal authorities,

Armed Services and Government department. The relative importance of the function -

depends on the nature and the size of industry or activity concerned and in all cases it

must be designed to suit the particular needs of the organization it serves.

Purpose of warehouse functions

The warehouse function is set up in any concern to assist in the production of goods and

services and no industrial unit or public undertaking of substantial size can be efficiently

managed without it.

The primary objective is to provide a service to the operating functions and this must be

fully appreciated. All other warehouse activities although they have their own relative

importance are subordinate to this main responsibility.

The service given can be analyzed into four parts as follows-

To make available a balanced flow of raw materials, components, tools,

equipment and any other commodities necessary to meet operational

requirements.

To provide maintenance materials, spare parts and general stores required.

To receive and issue finished goods.

To accept and store scrap and other discarded material as it arises.

In today’s context, the warehouse is used as a switching facility rather than as a switching

facility rather than as a long-term storage house. Attention is paid to higher inventory

turnover, lower operating cost, and shorter cycle time. Warehouse performance is judged

by its productivity and cost performance, while trying to achieve the two polemic goals

of customer satisfaction and lower cost of operation. Today, it is possible to redesign

warehouses, using simulation models, for maximum space utilization and increased

material flow, by automation, to achieve productivity gains and cost reduction.

An important step in logistics network selection is deciding on the centralized and

decentralized warehouse system. The warehouse can act as a mother warehouse or

distribution warehouse, depending on the distribution system adopted by the company.

The centralized warehouse ensures tight control on inventories and can operate on

economies of scale, resulting in lower operating cost. Decentralize warehouse operations

with multiple distribution centres ensure the best services to customers. Site selection for

locating the warehouse is the next step, which depends on the type of product,

consumption centres, transportation cost, customer service needs etc. focusing on

warehouse objectives of profit improvement through cost reduction and enhancement of

customer service level for gaining competitive edge, the following needs to be taken care

of:

Maximum utilization of storage space (floor and cubic space)

Higher labour productivity.

Maximum asset utilization.

Reduction and material handling

Reduction in operating cost

Increased inventory turnover

Reduced order filling time

Semi automated Storage/Retrieval

In the above semi-automatic system, the storage and retrieval machine is designed to

carry out the warehousemen to the storage location, rather than to bring products to him

automatically.

Carousel

The carousel automated storage retrieval system, is sometimes useful for small items of

relatively low consumption.

Spare Parts Logistics

An efficient design of spare-parts logistics Spare-parts logistics creates special demands

on the delivery service Delivery service :

To eliminate downtime, fast delivery of spare parts is necessary.

When maintenance measures for the customer can be performed only at particular

times like weekends or only when needed and not at regular intervals as part of

upkeep programs, delivery reliability becomes especially important.

The sale of spare parts is usually preceded by a negative event like the breakdown

of a primary product. For this reason, the delivered goods should not have any defects

in order to prevent a negative experience from becoming even worse.

Spare-parts orders are frequently emergency orders that require tremendous

delivery flexibility in terms of order transmittal, shipment routes and means of

transport.

 

For suppliers of spare parts, the availability of these items at the time when the customer

needs them is a critically important factor. Naturally, the costs of spare-parts provision

must be taken into consideration - particularly warehousing and transport costs [4].

 

WAREHOUSING FUNCTIONS

The warehouse is the integral part of the logistical system and the effectiveness of

customer service depends to a great extent, on the way the warehouse operations are

carried out. Broadly speaking, the warehouse is a service function in the supply chain of

the company and it performs the following functions:

Material Storage Function

The primary task of a warehouse is to store material till it is delivered to the customer or

end user. As the manufacturing and consumption never match, manufactured materials

have to be stored somewhere till the demand for the same is generated and delivery is

confirmed. In fact, storage is designed to accommodate the following four functions:

HOLD

Holding is the most primary function of the warehouse for finished products ready for

market delivery. Depending on demand or order booking pattern and the delivery

schedule promised to the customer by the marketing department, goods are dispatched

from the warehouse. At the warehouse there is a continuous inflow and outflow of

materials. A proper record of the material which goes in and out, has to be maintained for

information on inventory levels at any given point of time. The area allocations for

materials at different points of time is necessary to retrieve the material as and when

required for further delivery to a particular customer or markets. Hence the material

holding function has to be carefully planned considering variables like product

categories, product mix, product characteristics, shipment arrival time, expiry dates etc.

Consolidation

If supplies are originating from various sources in small quantities, it maybe economical

to collect these small shipments at one centre, to combine them, and make them, in a

large shipment to send it to the customer. Consolidation will ensure cost saving on

freight.

For import or export of goods for large buyers, whose requirement does not warrant large

volumes for shipment from each source, consolidated shipments ensure potential cost

savings. In such cases planning a warehouse for shipment consolidation maybe the ideal

proposition. The cost savings will offset the cost of setting up a place for consolidation.

Manufacturing plant

Warehouse Customer

Break bulk

The function of this facility is directly opposed to that of the consolidation warehouse.

Here, material that has arrived in bulk is divided into small shipments to deliver to the

end customer. Bulk cargo of fertilizers, oils and chemicals coming from the manufacturer

is broken into small consignments as par the requirements of the buyer.

Source 2

Source 3 Buyer 3

Buyer 2

Buyer 1

ConsolidationWarehouse

Source 1

Manufacturing

Plant

Break-Bulk Warehouse

Customer 1

Customer 2

Customer 3

Distribution warehouses of manufacturing firms routinely break bulk. The firm saves

substantially on freight by dispatching bulk shipments to its regional distribution centres,

where they are divided into small packets for further dispatch to the end user, as per

quantity requirements.

Cross Docking

This is similar to the break bulk activity, except that it involves multiple suppliers. The

usage of warehouse is for a short period of time. The material arriving in bulk or in fully

loaded trucks is broken into smaller consignments for further dispatch to customers. The

material stays in the warehouse for a maximum of 48 hours. Cross docking is most

commonly used in retail chains wherein the mother warehouse receives different

materials from multiple suppliers, which is divided into smaller consignments or sorted

(break bulk), and consolidated (repacked in small consignment) for dispatch to various

retail stores, as per requirements.

MIXING

A warehouse s sometimes used as a product mixing point in the case of companies

having a number of plants manufacturing different components, which are combined, at a

convenient place, to make the final product.

The process involved is simple mixing. Orders can be fulfilled without mixing, by

sending the ingredients in small uneconomical volumes from individual plants to the

customer. However, transportation cost becomes prohibitive in the shipment of individual

ingredients to customers. A common mixing point permits large volume shipments of

ingredients to a single location where they are assembled and dispatched to the customer

in sizeable lots in order to economize on transportation cost.

Postponement

With postponement, the anticipated risk of finished goods inventory maintenance is

reduced considerably. Parts and components are warehoused at strategic locations and

final assembly is kept on hold till other critical items required for assembly arrive at the

manufacturing plant. Thus, the postponement function of the warehouse reduces the risk

of finished good inventory and space blockage.

Packing

This is the most important function carried out in the warehouse after break-bulk

operation. The repacking of material as per the ordered quantities of the individual

customer is done at the warehouse. The packs are labeled and marked as per packaging

regulations or as per requirements of the customer.

Plant BIngredient 2

Plant CIngredient 3

Mixing Warehouse

Customer 2

Customer 3

Plant AIngredient 1

Customer 1

Material Handling Function

This function is divided in following three activities:

1. Loading and Unloading: The unlading activity is performed when goods arrive

at the warehouse. The material is offloaded from the transportation vehicle.

Loading is the last function performed in the warehouse. The material packed in

boxes is loaded onto the transportation vehicle at the loading area. Loading

includes additional efforts of bracing the load to prevent damages.

2. Material Movement (to and from the storage area): these activities are carried

out either manually or with the help of material handling equipment. The

incoming material, which is unloaded, has to be moved to its assigned place in the

warehouse for temporary storage, while during order pick up the material has to

be moved from storage to the packing area and then to the loading area. For

material movement, the most common equipment in use is the trolley, crane,

conveyor and forklift.

3. Order Filling: the final material handling activity is order filling. This includes

the selection of material from various lots at various locations in the warehouse,

as per the customers order. This activity is done manually or with the help of

robots. The order cycle time, which is the most critical parameter in customer

service, is very much dependent on the speed of material packing.

Warehouse Options-A Strategic Decision

For acquiring warehouse space, the following three options are available:

Private Warehouse

Public Warehouse

Contract Warehouse

Considerations for exercising these options depend on various factors such as product

characteristics, demand fluctuations, investments, costs of operation, degree of control,

scale economies etc.

The warehouse option is a strategic decision having a long term effect on system

efficiency and effectiveness. The option maybe exercised after a thorough evaluation of

the logistics system design mix. Firms invariably go in for a combination of the above

three options at different locations.

PROCEDURE FOR RECEIPT, STORAGE, ISSUE AND DELIVERY OF

MATERIALS.

Work guidelines for C & F Agents as applicable in TATA MOTORS’ Warehouse

Given below are general guidelines for C & F agents to make their own work

constructions for receipt, storage, issue and delivery of materials and to display the same

at respective activity locations.

♥GUIDELINES FOR RECEIPT OF MATERIAL AT SECURITY GATE

1. Check challan/invoice/lorry receipts of the party and direct them to warehouse in-

charge for their authorization to receive the consignment in the warehouse.

2. Do LECI transaction on SAP. Else record the following details in the

MATERIAL INWARD REGISTER after getting authorization to receive the

consignment.

a. Sl number

b. Date

c. Challan/Invoice no, date and supplier name

d. Truck Number

e. Transporter’s name

f. Time In

g. Time out

h. Signature

i. Octroi Num and date

j. Any other information in remark column

3. Endorse material Inward Register’s Serial Number to every challan/Invoice/LR.

Note: Stamp preferably on front of the second copy of the challan/invoice

indicating the Material Inward Register’s Sl. No, Date and vehicle number

4. Allow the vehicle to proceed further to unload at the receipt area.

♦ GUIDELINES FOR RECEIVING SECTION.

1. Check security stamp for MI number and warehouse incharge/authorization

signature before unloading. Check for inbound delivery number. If the same is not

received from vendor create the same.

2. Unload the items at the receipt area. Unload bulk items at the specific locations

with receipt identification details duly marked.

3. Attach receipt identification tags to every item indicating part number,

description, quantity, supplier’s name and date at the time of unloading.

4. Create GR document (MIGO) in SAP system with reference to inbound delivery.

Remove original octroi document for record purpose. Note receipt document

numbers (inbound and MIGO) on challan/invoice.

5. Check the physical receipts with suppliers’ documents for quantity. Check

visually for surface protection quality /surface condition/damages, if any

discrepancies inform to QA.

6. Generate MB02 transaction confirming quantity received on SAP system.

Generate GR tags.

7. In case of shop made items supplied by Pune/Jamshedpur/Lucknow works

through STO create GR with reference to outbound delivery. Check part numbers

and quantity. Attach identification tags and send the same to inning section. For

vendors receipts based on the GR tags, the items having no inspection category

are given for further pre-packing and binning. Parts have inspection category are

offered to QA for inspection along with GR tags and samples.

8. Get back inspected samples along with QA’s remarks on GR tag for receipt

record purpose.

9. After inspection confirmation, complete unit-packaging work. After unit

packaging is done the parts are binned in their respective locations.

10. In case of rejection by QA send rejected lot to designation rejection area duly

packed and marked with details like: Rejection report number, Supplier name,

supplier destination.

11. Forward the rejected material to dispatch section for onward dispatch to

respective sub-contractor.

12. File all respective suppliers’ invoice with GR tags serially in ascending order.

☻FOLLOWING ARE THE PRESERVATION MEASURES

1. Check the preservation of the items for the following before binning:-

a. Machined parts with cosmolene 945/rustolene 645.

b. Oil/rustolene to all unpainted/unplated sheet metal parts.

c. French chalk/talc powder to rubber parts wherever applicable.

d. Do not store the fragile items on top of the racks for more than 4 feet high.

2. All material stored outside should be packed in polythene sheets/covered and

stored in a shade area to prevent direct exposure to sunlight, dust , rain, etc. the

condition of storage shall be reviewed at least once in a month and correction

carried out as required.

3. For a new item where location is not available, generate the same and maintain in

the system.

4. Carry out perpetual inventory activities for stock checking as per the guidelines

given below:

‘A’ Class items- three times per year

‘B’ Class items- Twice in a year

‘C’ Class items- once every year

1. Parts found UNSERVICEABLE e.g. rusty, damage, etc.during perpetual

inventory or at the time of picking or packing should removed aside to carry out

the rectification work viz. derusting or repair and preservatory action of the same

as per above 1.

2. Wherever rectification work is not possible or the item has been got damaged to

the extent where serviceability is not possible should be inform to warehouse in

charge for necessary action and should be offered to QA for necessary removal

from stock to quarantine area.

3. All items in a particular class must be covered by perpetual inventory within the

given period of time

4. In order to consume the perishable items such as rubber, remove the oldest stock

first. For the purpose follow the First In First Out procedure.

5. Send the rubber parts, which have already completed two years of Shelf Part to

QA for re testing of its quality. The testing will be carried out by QA to confirm

the validity of the parts. Tests as applicable will be carried out with the help of

plant facilities whenever necessary.

6. Rubber items for which the extended shelf life is over should be removed from

the stock with the authorization taken from the warehouse in charge.

►GUIDELINES PICKING PACKING

1. Get the authorization in the form of pick lists issued by sales Dept to pick, pack

and dispatch the material to the customer.

2. Segregate UMRP tags and arrange pick list wise serially.

3. Segregate pick lists received from sales section on the basis of order types

4. Arrange Pick lists customer-wise and club to make substantial value and for truck

load wherever possible.

5. Prepare pick list lots after arranging UMRP tags location-wise.

6. After picking stick the UMRP tags to respective items and send the material

trolleys to packing lines along with respective pick list lots. Lay the material on

the packing line along with the pick lists.

7. Carry out preservation measures wherever required and remove rusty/damaged

parts from the lot while packing.

8. Bring cases, cartons and other packing materials as per the requirement to the

respective packing tables.

9. Use packaging carton for the parts wherever necessary.

10. Check for UMRP tags stickers on packaged items.

11. Check the part number and quantity with the UMRP tag and the pick list and

indicate the correctness by ticking in the Quantity column.

12. Give the parent pick list number as case No. on the shipping carton/case and also

record the same on the pick list along with respective case dimensions.

13. Nail/ (cello) tape and strap it.

14. Weigh the cases and put the gross weight on the carton or case along with station

name. Also record this weight on the respective pick lists.

15. After packing all the items in the pick list sign the pick lists and hand over the

cases/cartons and pick lists to the dispatch section.

▼AUDIT CHECK ON PACKED CASES

To confirm the correctness of packed cases/cartons, C&F representative will do audit

check on 150 cases/cartons in every month and report of its findings with the remarks of

possible causes if any, it must be made good immediately to clear that particular

consignment. The report will be forwarded to warehouse in-charge. Corrective action will

be taken by C&F agent to eliminate recurrence.

GUIDELINES FOR DISPATCH SECTION

1. Receive the pick lists from packing section and send the pick lists to office for

preparing Dispatch Notes and printing deliveries.

2. Receive the dispatch note from office and segregate the dispatch note and arrange

transporter wise.

3. Check the Road Permit position wherever necessary and follow up with Sales

Section for obtaining Road Permits wherever not available.

4. Evaluate the load to be transported and call the respective transporters.

5. Prepare the loading list for the cases to be dispatched indicating case numbers and

no. of cases in the system.

6. Check the case numbers and destinations before physical loading and also check

in the presence of Security the total no. of cases loaded.

7. Prepare the Gate Pass. Take signature of the transporters, Security, checking and

authorized personnel. Also obtain the G.C. notes against the respective dispatches.

8. Enter the G.C. notes in the dispatch note online in the computer and forward the

consignee copy of the G.C. notes to invoicing section along with original copy of

delivery.

9. In case of collection from warehouse consignments, obtain delivery order from

sales before physically handing over the consignments.

GUIDELINES FOR SECURITY AT THE TIME OF DESPATCH

1. Count all the cases/loose items being dispatched and loaded in the truck/vehicle.

2. Prepare loading slip for total quantity of cases/loose material loaded.

3. After completion of, tally the figure with the gate pass prepared and signed by the

authorized person. Check the signature with the ‘Specimen Sign Card’ writes

vehicle number, date and transporter’s name on the loading slip and sign.

4. Accompany the vehicles to the main gate and inform the main gate guard.

5. Whenever the transporter’s vehicles moves to other locations in the premises for

loading of vehicle spares, ensure that no loading is done without dispatch staff

and security personnel from the warehouse.

6. In case of the quantities not tallying, the matter is reported to the C & F agent in-

charge.

Warehouse Options:

Private Public Contract

Investment High None Very little

Flexibility in Material handling, storage and

Throughput planning.

Location Location

Cost Per Unit Sold Inversely related to volumes Low Inversely related to

volumes

Level of Control High Low Medium

Adequacy of goods

Stored

High Low High

Risk Due to change in market demand or

consumption centres

Minimal Minimal

Material Handling Systems

Material handling equipment is used in loading and unloading operations, for movement

of goods over short distances. The handling of materials in warehouses is restricted to

unitized forms, which require smaller size equipment. However, for bulk handling of

material at logistics nodes such as shipyards ports and airports different type of material

is used. In warehouses, material handling operations are performed at the following

stages:

Unloading the incoming material from transport vehicles

Moving the unloaded material to assigned storage places in the warehouse

Lifting the material from its storage place during order picking

Moving the material for inspection and packing

Loading packages/boxes/cartons on to transport vehicles

The efficiency of material handling equipment adds to the performance level of the

warehouse. The internal movement of the goods has a direct bearing on the order bearing

on the order picking and fulfillment cycle. The warehouse, wherein the material handling

equipment is in use, is more sensitive to labour productivity than the manufacturing

centre as material handling is more labour intensive. There is scope for reducing labour

and enhancing productivity by using emerging technologies in material handling. A good

material handling system will enhance the speed and throughput of material movement

through the supply chain.

Various material handling systems are in use, right from those that are fully manual to the

ones that are fully automatic. However, the selection of a particular system depends on

factors such as:

Volumes to be handled

Speed in handling

Productivity

Product characteristics (weight, size, shape)

Nature of the product (hazardous, perishable, crushable)

Recent trends indicate preference for systems with higher logistical productivity.

However, investments costs go up in more productive material handling using

sophisticated equipment. Hence, in majority of cases a combination of both manual and

mechanized systems is quite common.

Classification of the material handling system is based on the degree of its sophistication.

The most preferred way of material handling is manual, where volumes handled are less

and the investment in handling equipment does not ensure more benefits. In such case the

idle time of equipment will more and the equipment is underutilized. Handling systems

can be classified as follows:

Manual

Mechanized

Semiautomatic

Automatic

Information guided

The major criteria for selection of the right system are: units moved per hour, and the

distance it is moved. Higher volumes over large distances call for more sophisticated

systems, which attract higher investment. Sophisticated systems enhance the speed of

material handling, ensuring the speed of material handling, ensuring reliability and

productivity.

Material Storage Systems

The concept of unit load is quite important from the viewpoint of storage and movement

of goods in convenient lots. Unit load is constructed by bringing together a number of

individual items of identical configuration so as to make a large load, which ensures

convenience during storage and transportation.

There are many ways to unitise goods for better storage and handling. The most

commonly practiced method is to build load on a raised platform. This platform is called

a pallet. Another method is to construct a platform to fit the load. This is called ‘skid’.

The load should be in the most acceptable lot size for convenience of storage, handling

and movement, depending on the physical characteristics of the product. The pallets are

of standard size and are used for load standards. However skids used for non-standard

loads such as long metal components or in compressor/generator assembly. Other

common methods of unitizing are slip-sheet and clamp load. The slip-sheet is a platform

on which the load is assembled while the clamp is load assembly on the floor with clamps

on four sides of the load for facilitating its movement using material handling equipment.

The storage system in a warehouse has an important role to play in the total cost and

success of warehousing operations. Firms give more importance to the way inventories

are handled rather than how they are stored. Invariably, in the industry, investment

planning is done on the basis of handling equipment is possible provided the storage

system allows easy access of storage and retrieval of inventory. A well designed

inventory storage system is a compromise between the maximum utilization of the

available space and the need for easy and quick access to stored goods. In general, the

following rules are followed in designing effective storage systems.

Maximization of travel distance

Maximizing utilization of available space

Providing easy and quick access to stored goods

Facilitation of easy tracking of material

Provision of security against fire, damage and theft

Prevention of contamination and deterioration of goods

The criteria for selecting a storage system for a particular application depend on the

following factors:

Product characteristics

Products with contamination risk require storage facility that will isolate them from other

groups. For example, flowers pose great risk of odour contamination and similarly

hazardous chemicals pose risk of damage to other products or human life. Hence, the

design consideration for these types of products needs special attention.

Configuration

Products that are uniform in shape and size maybe stored in stacks or put in an enclosure,

while odd shaped products may require open space. For example, steel sheets, billets,

rods, angles, pipes etc are stored in the open in a steel yard.

Shelf life

The storage system designed is based on first-in-first-out considerations, that is,

perishable products are stacked such that consignments stored earlier are distributed first.

Product variety

The system needs to segregate products for ease in identification during storage and

retrieval.

BENEFITS OF STORAGE DESIGN

Proper planning of storage systems help in improving the efficiency of the entire logistics

system, which helps in the speedy movement of goods across the supply chain, resulting

in improved productivity.

Space economies

Proper design of a storage scheme can result in substantial savings on the available space,

which helps in planning for additional storage load without investment in space.

Enhance throughput

A well designed storage scheme will reduce the movement of material handling

equipment and idle time, resulting in significant improvement in the systems

productivity.

Ease in material location and tracking

A proper storage scheme helps in quick location and tracking of inventory items during

the material pick up operation, resulting in compressed order cycle time.

Security, safety and housekeeping

A well designed will bar unauthorized access to the inventory, ensuring security against

theft and pilferage. The system will also reduce accidents due to fatigue, strain and

collapse of the equipment. As the number of product handlings is reduced, the risk of

damage to products is greatly minimized.

Location Control

In the random location example on the left, receipts can be placed in any available

location. Thus, any item can be stocked in any partially occupied location. In the above

figure, location 20, containing item numbers 11 and 91, represents the near-100-percent

utilization of space that can be achieved when demand is relatively constant and random

storage location control is used. In the fixed location example, part numbers 11 and 91

are assigned permanent locations and, as a result, the average stock location utilization is

only 50 percent (not considering safety stock).

Item Number Sequence

The informal stock locating scheme and sequence within the logical groupings is often

approximate item number sequence, an alternative that combines the advantages of

random and fixed location methods. E.g. the storage bin above shows how part numbers

1,2,3 and 4 would initially be organized within one storage bay contains some planned

empty space, a provision that acknowledges that stock levels do vary over time. Soon

after the initial organization, the perfect part number sequence starts to deteriorate as

items are received and issued.

Storage waste

Pipe end protectors

In the above example storage bins for plastic caps of various sizes were designed and

constructed to store loose, unpackaged caps. Caps received in containers would be

emptied into the open front bins. While this eliminated opening and closing containers

each time an order was filled, the open face construction made it impossible to fill the bin

space to its cubic capacity since caps would spill out of the open face. In fact, the amount

of caps stored averaged well under one-half of the space occupied by the rack.

A new storage rack with smaller drawers enabled the company to reduce the floor space

occupied to less than one-half the previous area and cubic space utilization to one-quarter

of the old bins. The smaller area cut the walking time and it became easy to place

standard-size containers in the drawers of the same size, further reducing waste labour.

Inventory-Asset or Liability

Inventory generally constitutes the second largest item after fixed assets in the financial

balance sheet of the manufacturing company. From the financial perspective, this current

asset is worth maximizing to add value to the firm and it seems that there is no

disadvantage in carrying excess inventory. However investments in inventory carry cost.

The funds invested in inventory cost the firm by way of interest on working capital

borrowings from the bank at current bank interest rates. Hence reduction in inventory will

reduce inventory handling and carrying costs. The benefits of inventory reduction will be

reflected in terms of increase in profit margins, Return on investment (ROI) and

economic value addition (EVA).

Inventory Related Cost

Carrying Cost

Damage, Loss,

Pilferage Cost

Warehouse Cost

Ordering Cost

Inventory Cost

Inventory Related Costs

Traps logi: key to slashing inventory

A long-term vision from which shorter-term strategies for revising transport logistics

will emerge, will be one key to companies’ drives to slash inventories in the logistics

distribution and supple pipeline directly. Depending on the size of transport vehicles now

in use and frequency of trips between supplier and customer, revised transport logistics

has the potential to reduce pipeline inventory by as much as 90%.

The size and frequency of trucks (and other forms of transport) traveling between links

in the logistics chain has a direct impact on the amount on the inventory in the pipeline

and the speed with which the average item travels.

E.g. take a hypothesis in which every truckload received contains a supply of every item

stocks equal to the demand until the next truckload is received. The average theoretical

inventory of both supplier and user can be no less than one-half truckload plus safety

stock for each in this.

Hence the pipeline inventory for a single user and supplier combination would be one

truckload plus the average number of truckloads in transit and safety stock of each. If the

frequency of delivery can be changed from weekly to daily the pipeline inventory would

therefore be cut by 80%. Further reducing the size of the daily truckload to one-half of

its former volume (by using smaller trucks) makes it possible to change deliveries from

daily to twice daily. This increased inventory reduction to 90% level. Thus an important

part of every company’s vision and strategy should be to strive to find ways to increase

delivery frequency and reduce the size of loads.

Inventory reduction: the ultimate solution

The pipeline of supply between producer and consumer would be shortest and least

costly and would require the lowest investment if only it were feasible to deliver

production directly to consumers, with fewer intervening tiers of warehouses. However,

most products are burdened by market and production realities that dictate warehousing.

Thus, although most companies will find it impossible to eliminate warehousing, all

must realize that through better control and by moderating the circumstances that

necessitate distribution inventories, they can drastically reduce the inventory while

maintaining or improving customer service.

Certain market conditions force companies to stockpile. E.g. seasonal peaks and valleys

of such great magnitude that producing to demand is impractical. In that case companies

must produce to inventory (warehouse) in advance of the seasonal sales surge. Products

of moderate seasonality are sometimes almost as difficult to produce when demand

occurs as those of radical peak sales. Virtually no product exists for which there is no

variation in sales from period to period.

Further the variation in demand from one period to another is virtually impossible to

forecast with any reasonable degree of accuracy. Companies meet the uncertainty of

forecast demand by providing for safety cushion known as ‘safety stock’. Scientifically

managed inventories correlate the amount of safety stock and the amount of time

between the re-ordering and subsequent receipt. The reason is that the longer the time

required replenishing low stock levels, the more severe the deterioration of customer

service is likely to be over that period. Equipment and manpower capacity limits and

capacity variation are the most common production conditions that force the use of

warehousing to meet sales demand as it occurs.

Because lead-time and safety stock quantity should correlate slashing lead time should

be accompanied by drastic reductions in the lead time portions of safety stock.

Inventory Record Accuracy

Despite technological advances in computer software and hardware too little progress

has been made in solving one of the most persistent problems to plague companies’

inventory record accuracy. When faulty inventory balance information is combined with

high-speed computers, the result is erroneous replenishment orders that are spewed out

faster than clerical staff can process them, let alone detect and correct errors.

However, the surprise inventory shrinkage problem is but one of an avalanche of

headaches that will bury ‘Mr. President’ when his organization acts on the shaky

foundation of inaccurate inventory balances. Others include poor customer service,

disruptions stemming from shortages costly cycle counting, and annual or semi-annual

physical inventory taking as well as higher than necessary obsolete and surplus

inventory. These latter excess inventories arise from high levels of safety stocks,

provided to cushion the effects of stockout stemming from inaccurate inventory

balances. Yet when the causal source problems are finally identified they are almost

always basic and simple. Therefore simple failsafe solutions can be developed to

eliminate the possibility of error permanently.

Common accuracy source problems originate when storage locations and/or item

numbers are improperly written or simply not reported at all. When random storage

location systems are used in warehouse that employ conventional racks and shelves, lost

receipts might never be found were it not for the taking of a complete annual physical

inventory. Modern technology has contributed tools that can be used to attack accuracy

problems. E.g. a computer controlled automated storage and retrieval system (AS/RS)

eliminates the possibility of these error sources. The computer does this by keeping track

of where things are retrieved. Bar coding, another technological tool can also help by

eliminating the possibility of errors in writing down such data as stock item and location

numbers.

Not all companies have volume high enough to warrant fully automated equipment and

other technological tools to handle all types of products and components stocked. (In fact

they cannot afford it for any type regardless of volume). Such businesses can sharply

reduce mistakes by using low cost equipment reduce mistakes by using low cost

equipment and procedures designed to minimize the possibility of human error.

Fully automated storage and retrieval systems can also eliminate many other human

errors. The most common error of all is mathematic miscalculation. Eg a storekeeper

might issue a partial quantity from a container and make a counting or arithmetic error in

counting the balance in the container. He perpetuates and compounds the error by

writing the wrong quantity remaining on the outside of the container. When such

mistakes occur the quantities marked on container are likely to be used, without

verification, the next time an issue or cycle count is made. From that point forward, the

inventory record balance would be wrong. In fully automated storage and retrieval

systems, only full containers are stocked and issued, each container holding the same

standard quantity for given item. This completely eliminates the incidence of arithmetic

errors stemming from partial issues.

Transportation Infrastructure

In the movement of raw materials or products from their place of production to their

place of production to their place of consumption, transportation is the most important

component of the logistical system. Transportation serves two purposes, one is product

movement and the other is the in-transit product storage. The movement of product can

be achieved through various modes such as road, rail, air and sea subject to the

availability and access to infrastructure. The other function of transportation, i.e., in-

transit storage is not cost effective for a long period. The guiding principle for choosing a

mode of transportation is the least cost per unit weight/volume of the product moved over

a unit distance. However, selection of a particular mode is dependent on the availability

of transportation infrastructure in the region.

Transportation Modes-Comparison of Characteristics

Characteristics Road Rail Water Air Pipeline

Speed 2 3 4 1 5

Investment 1 2 3 4 5

Freight Cost 4 3 1 5 2

Reliability 2 3 4 5 1

Frequency 2 3 4 5 1

Capability 4 3 2 5 1

Note: Lowest rank is the best

Transportation is the barometer that measures the economic, social and commercial

progress of a country. It has transformed the entire world into one organization and

contributed greatly to the evolution of our civilization. Transportation is the most visible

element of logistics operation. It has a significant share in the overall logistical cost of the

firm and needs a great level of planning to control it. Transportation is the exciting and

dynamic part of the supply chain and managing transportation presents several

opportunities and challenges.

Logistical Packaging

In these days of cost optimization, every stage of physical distribution has considerable

significance. The significance is further augmented by variations in distribution channels,

handling methods, modes of transport and trans-shipments, storage conditions and

extremes of environment. As the distribution aspects of the product are influenced by the

above factors, the design of logistical packaging should interface effectively with all the

concerned functional areas and adapt itself to the material handling system available to

provide optimum cubic capacity utilization of warehouse and carrier area, convenience of

inventory keeping and meeting the basic needs to minimize the vulnerability to product

damage. Logistical packaging is appropriately identified as an aid in the distribution

network. It has to qualitatively and quantitatively fulfill the required expectations and

also be environmentally responsible.

Logistical Packaging Requirement

Distribution Needs-Unitization-Storage-Handling-Transportation

Product Environment-Type-Characteristics-Physical Dimensions

Logistical Packaging

Cost Implications-Design-Material-Reusability

Regulations-Design-Communication-Waste Disposal

Pallet Material Comparison

Wood Plastic Corrugated Board Metal

Advantages

Readily Available More durable than wooden

pallets

Easy to fabricate Most Durable

Easy to Make Cleaner than wooden pallets

Cheapest Alternative

Very Strong

Can be repaired in-house Can be Machine Moulded

Light Weight High Reparability

Takes Loads up to 200 kgs

No Dimensional Variations

Easy to handle Designed For Capacities up to

4000 kgsWaste Can be

RecycledCan be machine

FabricatedDisadvantages

Dimensional Variations due to manual fabrication

Not Disposable Prone to easy damage

Most expensive

Prone to attack by insects Strength lower than wood

Cannot take more loads compared to plastic and metal

Nailing may cause wooden planking to split,

leading to reduction of pallet strength

Cannot be Repaired

Wood fibre structure can affect strength

Costlier than wooden pallets

A common thread to all warehouse operations is the quest to manage expenses. The most

critical and manageable expense item on your P&L statement is labour. Managing labour

efficiently will generate immediate results in your quest to manage expenses.

This begins with capturing daily man-hours used by department or activity in categories

such as receiving, put-away, replenishment, pick/pack/ship, inventory management,

supervision, etc. Capturing the man-hours used can be done with sophisticated

warehouse-management system software or a more manual approach. But no matter the

method used, you must know how many man-hours are used each day, in each activity.

Once you’ve successfully determined man-hours used by activity, begin relating them to

a volume measurement (units, lines, orders, cases, pallets) for the activity by day. If you

don’t have a sophisticated system to do the calculation, create a spreadsheet for each

activity with weeks down the side margin and days of the week across the top heading.

Include subheadings for each day:

* volume;

* man-hours; and

* volume per man-hour.

Total up the horizontal subheadings for the week and calculate the total week’s average

performance. Charting this data cumulatively by day and week not only creates a

management tool to begin monitoring and controlling labor expense, but it also develops

a historical planning tool for budgeting.

Now that you’ve captured the core data of man-hours used and volume by activity,

establish metrics of performance for each activity. Again, the level of sophistication for

developing performance metrics varies from industrially engineered labor standards to

simply establishing reasonable expectations by making three to six observations of

employees performing a task, averaging units per time and deriving an expected

performance level of units per man-hour.

Acceptable performance levels might include work-pace averaging, performance rating,

fatigue and delay allowance, control start and stop time, assessing the skill level of the

employee performing the task, a detailed description of the activity, and identifying

order(s) and units. It’s beneficial to draw upon benchmarking information as a reference

to your own performance measurement.

The next step is to begin monitoring actual individual performance of day by activity or

at least by core activity — the point at which the employee spends the most time

working. Use the same type of spreadsheet and begin posting actual performance man-

hours and units to standard or reasonable expectations. One to three weeks accumulation

of data clearly will identify who is and who’s not performing up to expectation, as well as

confirming if your standard is valid or if it requires review and adjustment.

Your first obligation to underperforming employees is to determine if they’ve been

properly trained to perform their job effectively. Once assured they are, you can assert

management control within your company policies and guidelines to either improve their

performance or replace them.

With performance measurement and planning tools in place, you’re ready to address the

most immediate return to labor management — eliminate or reduce overtime or premium

labor hours. Premium labor hours are a crutch for poor performance.

We’ve found the best method to reducing overtime operationally is to simply bite the

bullet and advise your team there will be no overtime unless you personally approve it,

and you don’t plan to do so. Typically within a week or two following this direction,

you’ll find the same work is being done with fewer man-hours, and you’ll realize

immediate savings. The downside to prepare for is that during those two weeks, customer

service will slip until all realize you’re serious and pick up the pace. The key to success

in managing overtime is not to waver during those two weeks by approving exceptions to

your rule.

Costs justifying warehouse management

In today’s competitive marketplace, the primary focus of many organizations is on

improving customer service. To accomplish this, companies are embarking on a wide

range of process-improvement initiatives. In many cases, increasing customer service

levels involves adding personnel and increasing overall expenditures. Unfortunately,

these additional expenses can erode profitability.

One proven method for increasing customer service without incurring additional long-

term expenses is the implementation of a warehouse management system (WMS). The

WMS concept and technology are not new. These systems have matured into time tested

methods for reducing inventory costs while increasing overall efficiencies.

Implementing WMS technology within an organization already using an ERP system

allows that company to achieve a higher return on their software dollars and provide the

best possible service to their customers.

Our firm possesses a strong background in delivering distribution and warehousing

solutions. This allows us to offer a powerful, intelligent and full-featured WMS solution

to our customers. The better WMS solutions consists of three integrated modules –

warehouse management with radio frequency (RF) technology, integrated shipping, and

Work-In-Process tracking. The result is a system that provides a new standard for

inventory accuracy and visibility through all phases and operations within a facility.

WMS can provide an organization with tangible benefits quickly, improving warehouse

operations and increasing efficiencies without adding headcount. By implementing a

WMS, a company achieves a number of dramatic benefits. They include:

Directed put-away and directed order picking

Warehouse capacity management

Radio Frequency (RF) capability for data capture

Load planning

Cross docking

Picking optimization

ABC stratification

Interleaving of work

These benefits translate into direct cost savings. The extent of these savings depends on

a number of factors including existing inventory levels and accuracy, premium shipping

costs and personnel currently required for picking, packing and shipping. Our firm will

provide a quantified cost saving summary after further study and analysis.

Categories for Potential Cost Savings

The categories presented in this table are based on accepted industry standards and

represent areas for high-visibility cost reductions. Our consulting company will assign

dollar values for cost savings to each category after an on-site study of the current

warehouse situation.

Tangible Costs

CATEGORY REASON

Inventory reduction of up to 10% (one-time

savings). Inventory visibility and accuracy.

Reduced inventory carrying costs up to 35%

(industry average).

Lower inventory levels; higher space

utilization.

Reduced investment based on cost of money @

8%Reduced inventory.

Premium shipping costs Reduced shipping errors.

Personnel handling paper - potential headcount

reduction or resource redeployment*

WMS automates the management of

order and priorities, eliminating

paper.

Personnel handling order picking - potential

headcount reduction or resource redeployment*

RF based picking productivity

increases efficiencies.

Personnel handling shipping paperwork and

confirmation - potential headcount reduction or

resource redeployment*

Eliminate preparation work for

shipping documents and ERP ship

confirmations.

Eliminate physical inventoryCycle counting will replace physical

inventory requirement.

TOTAL SAVINGS: TBD

* Savings in headcount reduction will be based on the average loaded cost per person

per year.

Total net savings in tangible costs can range from $500K to well over a million dollars

in the first year. The result translates into a complete payback for the WMS within the

first year after implementation.

Intangible Benefits

In addition to the tangible costs and associated savings, there are a number of

intangibles difficult to accurately quantify, but are nonetheless valuable to any

organization as the result of implementing a WMS.

Ability to receive orders and ship same day without expediting. Consider the value of

receiving orders as late as 3:00 PM and shipping the same day. This brings a higher

level of service that helps differentiate you from your competitors.

Improved customer service levels. A WMS enhances the overall warehouse operation.

Data accuracy and inventory accuracy both improve. Mistakes are pushed to an absolute

minimum. Deliveries are timely, shipments are accurate and customers stay happy. This

results in avoiding the very costly problem of losing existing customers to the

competition. The cost of acquiring a new customer is up to five times greater than

maintaining an existing customer.

Self-managed employees. With system-directed operations available to the users,

supervisory intervention is held to a minimum. Much of the decision making required in

a typical warehouse is handled by the WMS. Workers do not need to take the manager

away from his/her primary job. Rather, the WMS directs the employee's actions based

on the user profile and location within the facility. Managers have more time to make

higher level decisions.

Redeploy excess resources to other process improvement initiatives. Rather than take on

additional personnel to increase sales volume and revenue, WMS allows better facility

management. Additional resources are usually not required to support increased

business. WMS frees up resources in many cases. These people are available for

redeployment to other areas of the business