Supply Chain Doctors The Supply Chain Doctors Supply Chain Management Kimball Bullington, Ph.D. .
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Transcript of Supply Chain Doctors The Supply Chain Doctors Supply Chain Management Kimball Bullington, Ph.D. .
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Supply Chain Doctors
The Supply Chain Doctors
Supply ChainManagement
Kimball Bullington, Ph.D.www.supplychaindocs.com
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Supply Chain Doctors 18
SCM Fundamentals• Introduction
• Planning
• Sourcing
• Making
• Warehousing
• Transporting
• Sharpening the Saw
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Supply Chain Doctors
Terminology
• Inventory Item – Goods that are tracked as part of the financial accounting system. Will have a SKU assigned to it
• Non-Inventory Item – Goods that are not part of the financial inventory record (expense items, factory supplies, office supplies). May or may not have a SKU assigned to it
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Supply Chain Doctors
Terminology• Unit of Measure - – The measurement
used to buy, stock, and sale a specific item. Common units are each, pieces, box, carton, pounds, feet, rolls, packs, etc.– Common source of Inventory errors
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Supply Chain Doctors
Terminology
• Inventory Adjustment – An increase or decrease made to the system inventory level of an item to make it consistent with the physical quantity on hand. The adjustment may represent a gain or a loss of inventory.– Physical Inventory– Cycle Counts
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Supply Chain Doctors
History of Warehousing
…And during the seven years of plenty, when the earth bore ample crops, he (Joseph) collected all the produce of the rich years over Egypt and stored the grain within the towns
…There was a famine in every country, but there was food everywhere in Egypt. And when all Egypt itself grew famished…Joseph opened all the granaries and sold grain.
Genesis
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Supply Chain Doctors 18
Warehousing• Costs• Receiving• Inventory Locations• Shipping Containers• Tools of the Trade• Inventory Management• Inventory Performance Measures• Picking Strategies• Lean Warehouse• Warehouse Management
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Supply Chain Doctors
Warehouse Costs
Fixed Costs• Building rent• Long-term equipment
leases• Some utilities• Some insurance• Depreciation• Sales, General, and
Administrative salaries (SG&A)
Variable Costs• Direct labor• Shipping supplies• Freight in• Freight out• Some utilities
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Supply Chain Doctors
• A third party warehousing provider is a firm that provides outsourced or “third party” pick and pack, warehouse storage, and distribution services. Major services also include:– IT support, including product tracking– Transportation booking– Reverse logistics– Program management
Third Party Warehousing
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Supply Chain Doctors
Traditional Cost Accounting
• Overhead costs are charged proportionally to direct labor costs, not the actual resources consumed
• True costs for a project are not known
• Individual customer money makers and money losers are not known
• Economic break-even point is difficult to determine
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Supply Chain Doctors
Activity Based Costing
• Customers are charged based on the amount of resources they consume
• Requires detailed financial tracking
• Converts many overhead costs into direct costs
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Supply Chain Doctors
Activity Based Costing
• Good when overhead is high
• Good when products/services are diverse (consume different amounts of overhead costs)
• Good when competition is tight
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Supply Chain Doctors
Space Utilization Rate
• Charges based on the number of cubic feet consumed by a customer’s product
• Space utilization rate may include factors for:– Value of the space used– Value of the product housed (insurance)– Taxes– Loss & damage– Obsolescence– Material handling– Labor (upkeep)
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Supply Chain Doctors 18
Warehousing• Costs• Receiving• Inventory Locations• Shipping Containers• Tools of the Trade• Inventory Management• Inventory Performance Measures• Picking Strategies• Lean Warehouse• Warehouse Management
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Supply Chain Doctors
Receiving
• Obtain Purchase Order
• Schedule delivery
• Determine stocking locations
• Obtain shippers Packing List
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Supply Chain Doctors
Receiving
• Match Packing List to Purchase Order(s)
– May not be one for one
• Unload material into staging area
• Verify product & count against Packing List
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Supply Chain Doctors
Receiving
• Record short & damage notes on Packing List
• Allow staging area for product inspection• Acknowledge receipt of product (receiver
in software or hardcopy) Proof of Delivery• Stock in inventory locations as planned• Payment of supplier may require 3-way
match of documents (Purchase Order, Invoice, Receiver)
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Supply Chain Doctors
Receiving
• Receiving is the initial record of inventory management
• Errors at the Receiving stage will carry forward– The gift that keeps giving
• Receiving errors create– Backorders– Overpayment– Inventory loss
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Supply Chain Doctors
Receiving Errors
• Sources of confusion/errors– Inconsistent Unit of Measure between
Purchase Order, Packing List, and Inventory Records
– Different SKU numbers used between vendor, customer and SOS inventory records
– Purchasing Tolerances• Purchase Order requires 100 pieces• 10% Receiving tolerance• Packing List indicates 110 pieces• Conflicting records
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Supply Chain Doctors
Receiving Errors
– Multiple purchase orders for the same SKU• Partial shipments leaving small quantities open on
a PO• One shipment covering quantity for 2 purchase
orders
– Multiple packages to represent one unit• One gondola may be shipped in 3 separate boxes
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Supply Chain Doctors
Cross Dock Operations
• Unloading material from an inbound trailer and immediately loading onto an outbound trailer.– Eliminate the need for storage– Eliminate the additional handling of put away
and picking items– Requires synchronization between inbound
deliveries and outbound shipments
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Supply Chain Doctors 18
Warehousing• Costs• Receiving• Inventory Locations• Shipping Containers• Tools of the Trade• Inventory Management• Inventory Performance Measures• Picking Strategies• Lean Warehouse• Warehouse Management
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Supply Chain Doctors
Inventory Locations
• Fixed Location– Dedicated inventory slots
• Random Location– Floating inventory slots
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Supply Chain Doctors
Fixed Location Storage
• Each inventory location is dedicated to a specific part number.
• Simple & easy to use
• Reduces errors
• Employees memorize locations for common items
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Supply Chain Doctors
Fixed Location Storage
• The location stays empty or partially filled until additional quantity of it’s designated part number is stocked
• Results in poor space utilization – wasted space
• Space is often “reserved” for unstored product
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Supply Chain Doctors
Fixed Location StorageSpace Utilization
Delivery
Day before delivery
Time
Inve
ntor
y Le
vel
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Supply Chain Doctors
Fixed Location StorageSpace Utilization
Max Inv Level
Avg Inv Level
Delivery
Day before delivery
Must Allow This Much Space
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Supply Chain Doctors
Random Location Storage
• Product is assigned to any available inventory location
• Products may be grouped into logical families (not totally random)– Customer based (Petco, Best Buy, Eckerds)– Volume based (slow movers, fast movers)– Commodity based (shelves, standards,
slotwall)– Material based (metal, wood, plastic)
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Supply Chain Doctors
Random Location Storage
• Requires precise inventory accuracy
• Works best when inventory move transactions are made on a real-time basis
• Results in much higher space utilization
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Supply Chain Doctors
Underutilized Inventory Locations
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Supply Chain Doctors 18
Warehousing• Costs• Receiving• Inventory Locations• Shipping Containers• Tools of the Trade• Inventory Management• Inventory Performance Measures• Picking Strategies• Lean Warehouse• Warehouse Management
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Supply Chain Doctors
Shipping Container
• Sealed metal box of standard dimensions used for intermodal freight transportation
• Can be loaded onto trucks, container ships, rail cars, and planes
• Capable of being stacked multiple levels high
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Supply Chain Doctors
Container Sizes
• TEU – Twenty-foot equivalent units– 20’ (length) x 8’ (width) x 8’-6” (height)
• Common Container Lengths– 20 ft – 40 ft – 45 ft– 48 ft– 53 ft
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Supply Chain Doctors
Container – No PalletsEfficient space utilization.Inefficient unloading process
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Supply Chain Doctors
Container - PalletizedInefficient space utilization.Efficient unloading process
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Supply Chain Doctors 18
Warehousing• Costs• Receiving• Inventory Locations• Shipping Containers• Tools of the Trade• Inventory Management• Inventory Performance Measures• Picking Strategies• Lean Warehouse• Warehouse Management
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Supply Chain Doctors
Pallet Jack
• Hand-propelled, wheeled platform equipped with a lifting device for moving pallets
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Supply Chain Doctors
Powered Pallet Jack
• Battery powered, wheeled platform equipped with a lifting device for moving pallets
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Supply Chain Doctors
Forklifts
Electric Forklift LP-Gas Forklift
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Supply Chain Doctors
Racks
• Space utilization
• Handling efficiency
• Damage minimization
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Supply Chain Doctors
Racks
• Pallet Racks • Cantilever Racks –
Arms supported at one end only
• Bin Rack – similar design to pallet rack, but smaller (<30” deep, <7’tall)
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Supply Chain Doctors
Racks
• Flow Rack – Bin rack on an incline.
– Loaded from the back– Picking from the front– Conveyor rollers move
product from back to front of rack
– Efficient order picking
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Supply Chain Doctors
Racks
• Rollaway Rack
– Movable racks that travel on wheels and rails
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Supply Chain Doctors
Double Face Pallet
• A pallet with top and bottom decks. Can be accessed from 2 opposite sides.
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Supply Chain Doctors
Four-Way Pallet
• Pallet which can be accessed from all 4 sides
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Supply Chain Doctors
Block Pallet
• Pallet where blocks, rather than solid stringers separate the top and bottom deck
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Supply Chain Doctors
Reversible Pallet
• A pallet with the same construction for the top and bottom deck. Can be used with either side facing up.
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Supply Chain Doctors
Skid
• A pallet with no bottom deck
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Supply Chain Doctors
Fumigated Pallet
• ISPM 15 – Requires all solid wood packaging materials to be either heat treated or chemically fumigated to provide pest control (stamp required)
• Plastic pallets are an alternative to fumigated wood pallets
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Supply Chain Doctors 18
Warehousing• Costs• Receiving• Inventory Locations• Shipping Containers• Tools of the Trade• Inventory Management• Inventory Performance Measures• Picking Strategies• Lean Warehouse• Warehouse Management
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Supply Chain Doctors
Functions of Inventory
• Meet anticipated demand
• Smooth production requirements
• Decouple components (areas) of the production-distribution
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Supply Chain Doctors
Functions of Inventory
• Protect against stock-outs
• Take advantage of order cycles
• Help hedge against price increases or to take advantage of quantity discounts
• Permit operations (operation lead time)
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Supply Chain Doctors
Objective of Inventory Control
• To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds
– Level of customer service
– Costs of ordering and carrying inventory
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Supply Chain Doctors
Types of Inventories
• Raw materials & purchased parts
• Partially completed goods called work in progress
• Finished-goods inventories – (manufacturing firms) or merchandise
(retail stores)
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Supply Chain Doctors
Types of Inventories (Cont’d)• Replacement parts, tools, & supplies
• Goods-in-transit to warehouses or customers
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Supply Chain Doctors
Requirements forEffective Inventory Management
• A system to keep track of the inventory on hand and on order
• A classification system for inventory items
• A reliable forecast of demand
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Supply Chain Doctors
Requirements forEffective Inventory Management
• Reasonable estimates of inventory holding costs, ordering costs, and shortage costs
• Knowledge of lead times and lead time variability
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Supply Chain Doctors
Unit of Measure• Unit of Measure – The measurement used
to buy, stock, and sale a specific item. Common units are each, pieces, box, carton, pounds, feet, rolls, packs, etc.– Common source of Inventory errors
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Supply Chain Doctors
On Hand Inventory
On Hand Inventory BalanceIncreases:
Purchase Receipts
Store Returns
Work Order Completions
Positive Adjustments
Decreases:
Shipments
Scrap
Bill of Material Backflush
Bill of Material Issues
Negative Adjustments
+ + + + +- - - - - -
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Supply Chain Doctors
Inventory Allocation
• Inventory transaction where product is promised (allocated) to an upcoming sales order
• Inventory may be categorized as “committed” once allocated
• Allocated inventory is no longer available for new sales orders
• Allocating helps to define the available to ship inventory on hand
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Supply Chain Doctors
Inventory Allocation
• If a new order arrives with an earlier due date, the system may indicate no inventory is available.
• The previously allocated inventory must be uncommitted to free it up for use on the new order
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Supply Chain Doctors
Inventory Counting Systems
• Perpetual Inventory (Continual) System– Keeps track of removals from
and receipts into inventory continuously
• Cycle counting - taking physical counts of items and reconciling with records on a continual rotating basis
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Supply Chain Doctors
Physical Inventory
• Perpetual Freeze Qty
• Physical Count– WIP– Packed not shipped– Returned not stocked
• Recounts
• Audits
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Supply Chain Doctors
Physical Inventory
• Accuracy Measures– Net $ Gain/Loss– Net % Gain/Loss– Absolute Value $ Gain/Loss– Absolute Value % Gain/Loss– Piece Count Gain/Loss– Piece % Gain/Loss– Accuracy by location
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Supply Chain Doctors
The Supply Chain Doctors
Inventory Counting Systems
When an error is found in an annual physical inventory, when did it occur?
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Supply Chain Doctors
Inventory Counting Systems
When an error is found in a monthly cycle count, when did it occur?
Finding and correcting the cause of errors is one of the most important
advantages of cycle counting.
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Supply Chain Doctors
ABC Classification SystemClassifying inventory according to some measure of importance and allocating control efforts accordingly
AA - very important
BB - mod. important
CC - least important
What principle does this look like?
Annual $ volume of items
AA
BB
CC
High
Low
Few ManyNumber of Items
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Supply Chain Doctors
Obsolete Inventory
• Inventory that is no longer usable for it’s intended purpose– Loss of purchase cost– Loss of freight in– Loss of handling and storage cost– Loss of disposal cost– May have some salvage value to offset above
costs
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Supply Chain Doctors
FIFO Inventory Policy
• First In First Out
• Rapidly moving inventory– Ensures minimal obsolescence– Ensures minimal deterioration or damage– Often costly to accomplish
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Supply Chain Doctors
LIFO Inventory Policy
• Last In First Out
• Slow moving inventory– Can result in increased obsolescence – Results in the eventual use of older product– Can result in increased deterioration– Lack of visibility, loss
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Supply Chain Doctors
FISH Inventory Policy
• First In Still Here• Slow moving inventory
– Until inventory is identified as obsolete, it can be justified as “good” inventory. Remember, Inventory Reserve is subjective
– Reluctance to dispose of inventory• Financial Loss• Visibility (5S)
– Lack of understanding of Inventory Holding Cost
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Supply Chain Doctors
• Too much inventory– Tends to hide problems– Easier to live with problems than to
eliminate them– Costly to maintain
• Wise strategy– Reduce lot sizes– Reduce safety stock
Inventory Strategy
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Supply Chain Doctors
Inventory Carrying Cost
• Interest• Space• Insurance• Taxes• Loss & damage• Obsolescence• Material handling• Labor (upkeep)
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Supply Chain Doctors
Inventory Carrying Cost
• Expressed as a $ amount per unit per year
• Expressed as a % of the Cost of the item– Examples– The inventory carrying cost for a 24” shelf is
$2.00 per shelf per year.– The inventory carrying cost for a cash counter
is 8% of the purchase cost.• Purchase cost = $1200• Inventory carrying cost = 1200 * .08 = $96/year
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Supply Chain Doctors
Total Cost
Annualcarryingcost
Annualorderingcost
Total cost = +
TC = Q2
H DQ
S+
Q = 2DS
H =
2(Annual Demand)(Order or Setup Cost)
Annual Holding CostOPT
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Supply Chain Doctors
Process Design for JIT
• Quality improvement
• Production flexibility
• Balanced system
• Little inventory storage
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Supply Chain Doctors
Process Design for JIT
• Small lot sizes
• Setup time reduction
• Manufacturing cells
• Limited work in process
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Supply Chain Doctors
Reduced inventoryLess reworkLess storage spaceProblems are more apparentIncreases flexibilityEasier to balance operations
Benefits of Small Lot Sizes