CHAPTER FIVE

STORAGE MANAGEMENT
5.1 Introduction
Warehouse/store is an essential branch of an industrial unit. It is the depository of all materials
required by the industrial unit and supplies materials as and when required. Different types of
materials are required for different operations in a production unit. The variety of items stored in
store is too large that a planned system is necessary to keep them safely, identify them easily and
issue them with minimum efforts and time.
5.2 Objectives of Stores
Stores play a vital role in the operations of a company. It is in direct touch with the user
departments in its day-to-day activities. The most important purpose served by the stores is to
provide uninterrupted service to the manufacturing divisions. The objectives of stores can be
classified as follows:
 To receive raw materials, components, tools, equipments and other items.
 To provide adequate, proper storage and preservation.
 To meet the demands of the consuming departments.
 To minimize obsolescence, surplus, and handling.
 To highlight stock accumulation, discrepancies and abnormal consumption.
 Apply effective control measures.
 To assist in verification and provide supporting information.
According to Ahuja (1992), the following are some of the objectives of store management.
 Minimization of Cost of Production

- The main aim of storekeeping function is to minimize the Transport Department

various aspects of costs involved, while providing efficient and effective storekeeping services.
Equally important are the costs of materials related to storage itself. These include the cost of
capital investment in materials and supplies, the cost of preservation and handling of stores, the
cost of record keeping, cost of using of storage equipment and store building, and expenses for
arranging light, heat, ventilation, insurance, losses due to spoilage and improper location of
stores.
 Coordination with other departments
The following departments are closely linked to the stores department.
- Inspection Department -Sales Department

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 - Design and Engineering Department -Production Department and
- Finance and Accounts Department -Purchase Department
5.3 Storage Functions and Responsibility
The stores is a unit serving or an activity considered as a temporary location for materials needed
for operational purposes, and should be planned, organized and operated in such a way that the
period for which each stock item kept in should be as short as possible. The stores department
provides both service and control functions. It must develop a system for classifying,
marketing, and locating all materials so that they are readily accessible and at the same time,
protect them against pilferages, unauthorized usage, and unnecessary damage or deterioration.
The following are the activities that storage is expected to perform.
 Receive all incoming materials.
 Check against quantities and qualities, purchase order, invoices and specifications.
 Provide adequate and proper storage and preservation.
 Issue materials against authorized requisitions.
 Minimize obsolescence, surplus, waste and scrap.
 Perform proper codification, standardization and preservation.
 Ensure good housekeeping so that material handling is done accurately.
These activities and responsibility areas can be put into five functions: Receiving, Storing,
Issuing, Stock Controlling and Store Documentation.
Receiving Materials
The receiving section (function) is the central place where all incoming supplies are received,
checked and inspected before storage or use. It is also called Goods Inward Section. Although
materials may be received room from many sources (internal and external), our emphasis here
will be on receiving materials from external sources i.e. from suppliers.
Receiving Procedure
A typical receiving procedure consists of four steps (Dobler and Burt, 2001):
1. Unloading and checking the shipment. The number of containers unloaded from the
carrier’s vehicle is checked against the carrier’s manifest (freight bill) to make certain the
full consignment has been delivered. All containers are also inspected for external
damage.
2. Unpacking and inspecting the material. A receiving clerk is held responsible for three
verifications. First, he or she checks the material received against the seller’s packing slip
and against a copy of the firm’s purchases order. Second, the quality of the shipment is

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 verified in the same manner. Finally, the clerk inspects the general condition of the
material to determine whether any external damage was incurred during shipment.
3. Completion of the receiving report. Preparing receiving report based on the report from
inspection and other units.
4. Delivery of the material. Dispatching the received material for respected units and
departments according to their requirement.
Storing Materials
The type of equipment to be used in storage depends on the nature of materials to be used, the
size and quantity.
 Bin- Bin is storage equipment with partitions for keeping small items. Each division in a
bin is called a pigeon-hole. Generally, only one item is stored in a pigeonhole.
 Rack- Rack is an open type of storage equipment for keeping bulky materials. The
number of shelves will depend on the type of materials to be stored, quantity involved etc.
 Pallets – pallets are specially designed platforms for the stacking of materials with a view
to the whole load being moved. They are made of either wood or metal depending upon the
load they are expected to carry.
 Block stacking - is another version of storage method in which boxes or pallets are stacked
directly upon each other.

Stock Issuance
Issue of materials, which is supply of materials from stores to the various users (department) of
an organization, is one of the routine activities of the warehouse. The user departments often
demand immediate issue of the materials for attending to urgent repairs of plant and machinery.
Stock issuance is executed when the user department comes or sends to the store section and
presents properly authorized issues note-usually referred as stores requisition or issue note or
requisition voucher. Store requisition should include the following information:
- Requisitions -Material code
- Description of the material -Quantity require
- Signature of the person authorized -Price
Types of Issuance of Materials
i. Capital issue - These are the major capital item (machines, equipments, tools) purchased
and issued by the company.

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 ii. Imprest issues - These are items that are required by the user to be constantly on hand.
Therefore, the user will need constantly to top-up (to fill) his/her supply.
iii.Replacement issues - This is when a material has been broken or worn out or obsolete. In
this case the authorization for a new issue is the exchange for the old piece of equipment
or item.
iv. Loan Issue - These are usually tools that are required by certain departments for special
jobs. The material is to be retuned back to the store.
v. Allocated Issue - This is when stock has been allocated by the production plan to a certain
operation in a given section.
vi. General Issues - These are general items of stock needed by various departments within
the operation for the day-to-day running of the company.
vii. Special Issues - In cases where highly dangerous materials are being handled, a special
issue procedure has to be followed to ensure that proper precautions are taken against
possible damage.
Stock Controlling: Stock taking and Stock verification
Stocktaking means manual counting of store items and tallying the physical balance with the
quantity as recorded in the books. Stocktaking is a routine and continuous exercise in a
warehouse and is a strong management tool to ensure that materials procured are accounted for
correctly and that the critical items are physically available as shown in the records.
Need for stocktaking
Stocktaking is essential for the following reasons.
 To detect shortage/excess of materials in the stores.
 To detect negligence, mistake, or a willful wrong act on the part of any employee.
 To make sure that important or critical items or physically available.
 To assess the real value of inventory in the stores.
 To take immediate action in utilization of the items with limited remaining shelf-
life.
 To develop an appropriate market strategy for a finished product.
Stocktaking Methods
 Routine or Periodic Checks ;- Periodic stocktaking is quarterly or semiannually
checking of the entire stock in one or two days.
 Perpetual Stocktaking;- Perpetual inventory may mean checking daily a few items.

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  Annual Stocktaking;- Annual stocktaking is the most common method of checking
inventory both physically and record on the book. This is done at the end of a
financial year.
 Low point or Out-of-Stock;- This type of stocktaking is only made when the record
shows a particular item having out stock or when only a small quantity remains in the
bin.
Store Document
Stores division generates lot of paper work in the process of receipt, issue, inspection and stock
taking of items. As per procedures, every action of the stores department should be documented.
The division should always keep the records up-to-date. It is absolutely essential for the safety of
materials and their quick verification. The major documents to be kept by store functions
include.
- Receiving report -Issuance copy
- Bin card -Acceptance note
- Rejected note -Traveling requisition
- Purchase order -Package slip
- Freight Bill (suppliers invoice) -Bill of Materials
- Materials Requirements Planning
5.4. Stores Location and Layout
In the matter of locating the stores, materials management is rarely consulted. The normal
practice is to locate the stores near the consuming departments. This minimizes handling and
ensures timely dispatch. In stores layout the governing criteria are;
 Easy Movement of materials,
 Good housekeeping,
 Sufficient space for personnel and materials handling equipments,
 Optimum utilization of storage space,
 Fair use of storage equipments, such as shelves, racks, pallets
 Proper preservation from rain, light and other such elements.
 Number of end users and their location.
 The volume and the variety of goods to be handled.
 Accessibility to modes of transportation such as rail and road.
Since stores have to be nearest to the user, large organizations usually have stores attached to
each consuming department, whereas receiving is done centrally. It is also important that the
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stores are constructed with a futuristic orientation, so that sufficient flexibility for expansion
needs is inbuilt. The stores building must have adequate facilities for preservation of stores.
Sometimes, facilities such as cold storage, heating equipments, air conditioning and similar
facilities may be required. The important factors in the design of stores building can be
summarized as follows.
1. Lighting - Clear and adequate lighting is a must for a proper work environment.
2. Safety
This factor is perhaps the most important aspect. The following measures are necessary if
accidents are to be checked:
a. Safety consciousness should be instilled in the minds of stores personnel.
b. Safety appliances, such as goggles, hand gloves, etc., must be provided.
c. All stores equipment must be kept in good order.
d. Healthy competition can be stimulated by installing ‘safety awards’ and cash prizes.
e. Provision of fire fighting facilities.
f. Other factors which merit attention include provision of toilets, routine maintenance,
equipments, safe electrical wirings, etc.
5.5 Storage Systems and Types
Storage Systems
There are two basic systems that can be used in physically controlling stores materials:
1) A closed stores system and
2) An open stores system
The application of each depends on the nature and requirements of a specific production
operation.
 Closed System: As its name indicates, a closed stores system is one in which all materials are
physically stored in a closed or controlled area. Wherever possible, the general practice is to
maintain physical control by locking the storage area. As a rule, no one other than stores
personnel is permitted in the stores area. Material enters and leaves the area only with the
accompaniment of an authorizing document. This system is designed to afford maximum
physical security and to ensure tight accounting control of inventory material.
 Open System: The open system represents the second major type of stores system. Its widest
use is in highly repetitive, mass production types of operations that exhibit a continuous and
predictable demand for the same materials. Most JIT manufacturing systems exemplify this
situation.

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The open system is designed to expedite production activities. It places little emphasis on the
physical security of materials. In ideal applications, there is considerable justification for this
approach because the material is used relatively quickly, and it is not subject to a high rate of
deterioration, obsolescence, or theft. Generally speaking, an open system is more likely to
function successfully if it is not applied to a large number of items.
Types of Stores
Materials held in a store can be classified according to the use they are put into. The advantages
of such a classification are that each broad category of use has its own characteristics and hence
needs its own system for proper control. In a manufacturing establishment the materials can be
classified as raw materials, work-in-progress, bought-out components, spares, consumables and
packing materials.
Raw Material Stores
The proper control of raw materials is one of the prime factors that influence profitability of a
company. These, being the major input into the organization, form the bulk that gets converted
into output. A stock out in this class of materials will be immediately reflected by an idle
manufacturing line. External factors in the supply of such as availability, lead time, seasonality,
and credit conditions all combine to influence the stocking of raw materials. Therefore, as the
organization grows in size, it will be advisable to have a separate raw material store.
Work-in-Progress stores
This class of materials is largely found in engineering industry. In a process industry, these are in
the process line itself and hence external storage is not required. The information system
required for the control of these should be comprehensive so that the persons in charge know
what is where. The normal practice is to let the production planning and control department have
the responsibility of such materials. But in many industries, where the size or the nature of
manufacture does not warrant, the accounting, responsibility and control of these materials are
saddled on the stores section. Also, in organizations that have an integrated materials
management setup, these materials come under purview of the stores section.
Component Stores
In engineering industries, the finished products require complements of the final assembly. These
are either manufactured in feeder shops or procured from sub-contractors. In either of these cases
they are stored in a component store from where the assembly lines are fed.

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Spares/Maintenance Stores
The consumption pattern of spares and maintenance items is usually unpredictable. In addition to
this one has to contend with the external conflict between the maintenance and stores functions
regarding the availability of spare parts and the responsibility for holding these items.
Finished Goods
Control of finished goods is normally with the marketing or sales department. The peculiarities
of the finished goods depend on the type of industry. In a consumer product or a process industry
the input to the stock is as per the production schedule while the output will depend on the
market conditions.