Warehouse Management - The importance of inventory - Components of inventory carrying cost - Questions to ask prospective customers

1. May 22, 2014 1
Managing the WMS in RADIO
BEACON time
“If you always did what you always did
you will always get what you always got.”
- Mark Twain

2. May 22, 2014 2
Module Objectives
The importance of inventory
Components of inventory carrying cost
Questions to ask prospective customers

3. May 22, 2014 3
Acronym Quiz
ABC
FIFO
JIT
ROI
LTL
SKU
UPC
Activity-based costing
First-in, First-out inventory valuation
Just-in-time Inventory Management
Return on Investment
Less than truckload
Stock keeping unit
Uniform product code

4. May 22, 2014 4
Basic Questions about Inventory
Why do companies keep inventory on hand?
– To provide prompt service to their customers
What are the costs of inventory?
– Space
– $
– Obsolescence

5. May 22, 2014 5
Inventory – A Definition
Inventory is money tied up in resources
– Producers employ a variety of resources – capital,
materials, labour, knowledge – and convert them into
stock, called inventory

6. May 22, 2014 6
Objectives of Inventory
Proximity
Speed
Cost optimization
Radio Beacon® assists in mobilizing inventory. Inventory can be
optimized to serve customers effectively and save money.

7. May 22, 2014 7
Inventory is Costly
Costs money to carry until used or sold
– Defined as carrying cost, which is the sum of all
associated costs until goods are sold. A significant
part of this cost is interest, the time value of money.
Interest cost is based on the inventory valuation.

8. May 22, 2014 8
Inventory is Costly
Other cost components
– Materials and finished goods handling
– Storage costs – rent, depreciation, utilities,
insurance, security

9. May 22, 2014 9
Carrying Cost Calculation
P = Product value (average) $100,000
W = Storage cost/month $500
T = Storage period 90 days in a 360 day year
I = Simple Interest 12% per year
D = Damage/obsolescence 1% per year
(a) Interest = P X I X T / 360 $3,000 C
(b) Carrying Cost = C + W + D
$3,000 $1,500 $250 $4,750
(c) Inventory Carrying Rate = $4,750 / $100,000
4.75%
(d) Inventory Value after 90 Days = P + C + W - D
$100,000 $3,000 $1,500 $250
$104,250

10. May 22, 2014 10
Inventory is Costly
Tip
– Carefully assess the inventory costs in terms of
shrinkage, loss and damage, mysterious
disappearance, theft and obsolescence

11. May 22, 2014 11
Develop Qualitative information
Collect reliable logistics information about your
products, customers, suppliers, manufacturing
process, inventory and network from your
existing databases
If necessary, simulate your network with the aid
of modeling techniques.

12. May 22, 2014 12
Product Information
$ Value?
Handling, storage, transportation, shelf life, hazardous
characteristics?
Seasonality?
Temperature protection?
Loss and damage experience?
Obsolescence factor?
Space requirements?
Warehouse services needs?

13. May 22, 2014 13
Customer Information
Who are your customers?
Where are they located – are they concentrated or
dispersed?
What are your customers’ delivery requirements?
What are your channels of distribution?
What are your domestic or global marketing areas and
regions?
Are your products readily available from the
competition?

14. May 22, 2014 14
Supplier Information
What determines your need for raw materials or
supplies inventory?
Are raw materials and supplies readily available
or do they have to be made to order?
What are your ordering patterns?
Are suppliers reliable and timely?

15. May 22, 2014 15
Inbound/Outbound Shipping
What are your freight terms?
What are the modes of transportation?
Are they effective and cost-efficient?
How many customers have you lost as a result
of shipping errors?

16. May 22, 2014 16
Raw Materials
Inventory Information
What determines your need for raw materials
inventory?
How have or can you develop alternative
sources of raw materials?
Could you reduce raw materials and supplies
inventories and related warehousing cost by
changing your purchasing practices and method
of production and scheduling?

17. May 22, 2014 17
Finished Goods
Inventory Information
What determines your need for finished goods inventory
– customers ordering patterns and practices, market
presence and share, or competition?
Have quality demands (JIT, ECR, QR, ISO 9000)
increased or decreased inventory locations and
volumes?
Have you calculated your response time?
What have you done to shorten your response time?

18. May 22, 2014 18
Distribution Network
Why and how were inventory locations selected?
Are transportation transit times realistic?
How are inventory availability and required levels
determined?
Does each location provide enough or too much space?
What is the performance of each?
Could you reduce the number of warehouse locations
and still maintain acceptable service levels?

19. May 22, 2014 19
Develop Quantitative Information
Shipments
– Inbound (I/B)
• Domestic
• Import
– Outbound (O/B)
• Domestic
• Export
– In Transit
• From plant to warehouse
• Between warehouses
Transportation Modes
– Truckload (TL)
– Less-than-truckload (LTL)
– Container
– Parcel – express shipping
– Customer pickup

20. May 22, 2014 20
Develop Quantitative Information
Average inventory
volume
Sq/Cu feet used
Throughput activity
– # receipts
– # orders
– # shipments
– Special services
Cost
– Fixed and variable
– Storage (time-based)
– Handling (transaction-
based)
– Allocations
– Administration overhead
Warehouse/Distribution Centres

21. May 22, 2014 21
Conclusion
Know which questions are applicable to your
customers
Understand the basic concepts of inventory and
warehousing
Understand the cost components of carrying
inventory