Distribution and Warehousing Notes

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HPS 2205
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HPS 2205 : DISTRIBUTION AND WAREHOUSING

COURSE OUTLINE
COURSE DESCRIPTION
This course is intended to expose the students to the current concepts, practices and skills required to
effectively manage warehousing and distribution functions in an overall supply chain system.
COURSE OBJECTIVE
On completion of this course, students should be able to:

a) Appreciate the respective roles of warehousing and distribution functions in supply
chain.
b) Apply the correct principles to design appropriate storage accommodation for
materials.
c) Apply the appropriate systems and procedures in the receipt, storage and issue of
materials in a warehouse.
d) Learn the techniques and skills required to manage and handle various activities in a
distribution system.
e) Understand the various environmental and legal issues relevant in warehousing and
distribution operations.
COURSE CONTENT
1. Storage Accommodations
• Introduction to storage
• Lease/hire
• Conversion
• Construction and design consideration
• Stockyards
2. Storehouse operations
• Layout
• Stock location
• Preservation
• Disposal of materials
• Security and safety
3. Materials handling
• Definition and scope of material handling
• Requirements of efficient handling system
• Handling systems and associated equipment
• Design internal flow
• Loading/Offloading facilities
• Cross-docking
4. Inventory Control
• Introduction to Inventory control
• Reasons for holding stock
• Stock Holding Costs
• Variety reduction and standardization
• Stock levels
• Forecasting demands
• Inventory control technics ie. Pareto, ABC analysis, EOQ etc

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• Basic Inventory control systems i.e. re-order level, periodic reviews, materials
requirements planning (MRP 1) and just in time (JIT)
Individual Work-based Assignment to be submitted to lecturer OR invigilator during CAT

time in 6TH WEEK
5. Receipt and inspection of materials

• Definition and importance of receipt and inspection
• Sources of receipt
• Considerations and Process of receiving materials
• Quality and quantity inspection
• Process and Methods of Inspection
6. Stock records and information system
• Purposes of stock records and Information
• Stock recording systems i.e. manual and computerized system
• Application of information Technology
7. Identification of materials
• Definition and importance of Identification
• Ways of Identification i.e. description and coding
• Methods, merits and demerits of coding
• Preparation of catalogues and manuals
8. Stock–taking
• Definition and purposes of stock-taking
• Methods of stock –taking
• handling discrepancies
9. Issue and dispatch of materials Definition and Importance
• Authorization of issues
• Methods of issuing materials
• Process of issuing materials
• Dispatch process
10. Management of physical distribution and its function
• Definition of physical distribution
• Elements of physical distribution
• Role of physical distribution in supply chain
• Objectives of physical distribution management
• Relative merits and demerits of in-house and contracting out options  Physical
distribution planning i.e. strategic, tactical and operational plans.
• Fleet management in routing and load planning, vehicle acquisition, replacement, and
maintenance policies.
• Depot management i.e. depot warehouse location, decisions, size and number.
• Managing Inventory in a distribution system e.g. Distribution Resource Planning
(DRP 2), determining stock requirements.
• Co-ordination of distribution systems
11. Distribution operations
• Customer order processing and service
• Vehicle types and selection
• Transport and transportation consolidation
• Managing returns

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• Inter-modal transfers transshipments

• Packaging and containerization
• Information technology
12. Environmental and legal consideration
• Environmental factors e.g. collection, recycling, disposal and Packaging of goods,
pollution.
• Safety considerations
• Relevant legislation e.g. Traffic Act, Factories Act and environmental laws
13. Performance measurement in warehousing and distribution
• Introduction to performance measurement
• Setting performance target
• Performance monitoring
• Performance assessment/Evaluation
• Techniques of benchmarking, service and cost standards, direct profitability
Final end of semester Exam in week 16
TEACHING METHODOLOGY
The Course will be conducted using several approaches:

• Lectures to elaborate and reinforce the course text materials
• Group work presentation / class discussions
• Case study applications
• Work based assignments
COURSE TEXT REFERENCES

Crocker, B., Jessop, D., & Morrison, A. (2012). Inbound logistics management: storage and supply of
materials for the modern supply chain (7th ed.). Upper Saddle River, New Jersey: Pearson Education Ltd
COURSE EVALUATION
• Attendance & Participation, Work-based Assignments, CATS: 30%

• End Semester Examination: 70%
FINAL GRADING
Marks Grade
80%-100% A
65 - 79 % B
50 - 64% C
40 - 49% D
Below 40% F
RECOMMENDED REFERENCE BOOKS

1. Bowersox D., Closs, D., & Cooper, M.B. (2012). Supply chain logistics management (4th ed.).
Boston, USA: McGraw-Hill Higher Education.
2. Benton, W.C. (2010). Purchasing and supply chain management (2nd ed.).New Delhi, India: Tata
McGraw-Hill.
3. Burt, D., Petcavage, S., & Pinkerton, R. (2009). World class supply management: the key to
supply chain management (8th ed.). Boston, USA: McGraw-Hill Higher Education.
4. Jonsson, P. (2008). Logistics and Supply Chain Management. Boston, USA: McGraw-Hill Higher
Education.
5. Murphy, P.R., & Wood, D.M. (2014). Contemporary logistics (10th ed.). Upper Saddle River,
New Jersey: Pearson Education Ltd

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JKUAT LECTURE NOTES

EVENING CLASS
PSM 221: DISTRIBUTION & WAREHOUSING MANAGEMENT
Introduction
Warehousing refers to the activities involving storage of goods on a large-scale in a systematic
and orderly manner and making them available conveniently when needed. In other words,
warehousing means holding or preserving goods in huge quantities from the time of their
purchase or production till their actual use or sale. Warehousing is one of the important
auxiliaries to trade. It creates time utility by bridging the time gap between production and
consumption of goods. It can also be described as the general Performance of administrative and
physical functions associated with storage of goods and materials. These functions include
receipt, identification, inspection, verification, putting away, retrieval for issue, etc.
A distribution centre for a set of products is a warehouse or other specialized building, often
with refrigeration or air conditioning, which is stocked with products (goods) to be re-distributed
to retailers, to wholesalers or directly to consumers. A distribution centre is a principal part, the
"order processing" element, of the entire "order fulfillment" process. Distribution centres are
usually thought of as being "demand driven". A distribution centre can also be called a
warehouse, a DC, a fulfillment centre, a cross-dock facility, a bulk break centre, and a package
handling centre. The name by which the distribution centre is known is commonly based on the
purpose of the operation. For example a "retail distribution centre" normally distributes goods to
retail stores, an "order fulfillment centre" commonly distributes goods directly to consumers, and
a cross-dock facility stores little or no product but distributes goods to other destinations.
TOPIC 1: STORAGE ACCOMMODATIONS
1. Introduction to storage
Stores should be considered as a temporary location for materials needed for operational/
production purposes. Stores should be planned, organized and operated in such a way that the
period of storage of each item is as short as possible in consistent with usage.
There are 3 types of stores:
• Centralized stores – materials are kept and issued from one central point
• Decentralized stores – materials are kept and issued by sub-stores or branches
• Imprest stores – materials are issued to specific department at start of a given period and
materials used for production / operations are replaced /replenished at the start of the next
period
Advantages of Central Stores
1. Stocks are kept to minimum as requirements from branches are evened out.
2. Fewer stores staff are required
3. Paper work is reduced as delivery is to single point
4. Control of stock level is made easier and simple
5. Better security measures can be maintained
6. Risk of duplication of stock items is reduced- opportunity for standardization
7. Economies in storage space and material handling is facilitated
8. Better prices due to discount for bulk buying
9. Inspection and testing of goods can be done more efficiently.
Disadvantages of Central Store

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1. High transport cost and

2. increased double handling
3. Possibility of breakdown of transport vehicles or unavailability
4. Increased risk of fire and damage of materials
5. Inconvenience to users of materials
6. Delays in supply of urgent materials to branches due to distance
NB: Advantages of Centralized stores are the disadvantages of decentralized stores and vice
versa
Purpose of Stores / warehouse

1. To avail steady follow/supply of materials to meet operational requirements
2. To provide maintenance materials, spare parts as required
3. To receive and issue inward materials and finished products
4. To store scrap material and empties
5. Break Bulk – receive in bulk and issue in smaller lots thus matching user demand with
supply
6. Creating bulk / consolidating of finished product before dispatch e.g. through palletizing
7. Smoothening supply to customers by storing finished products until customer require
them
8. Combining a range of products in single location for customers’ convenience
Role /Objectives of Stores Management
1. Economy – Keeping stock at optimum level and minimize storage cost
2. Identification of stock – defining and coding all stocks with degree of standardization
3. Receipting – documenting all deliveries
4. Inspection – examination of all deliveries for quantity and quality
5. Issue and dispatch – may involve packaging or loading of vehicles with goods for
delivery to user
6. Maintain stock records – delivery notes, GRNs, Issue vouchers, stock cards, and stock
balance sheets
7. Stock accounting – recording stock movement and closing stock values
8. Stock control – management flow of material to support rate of consumption
9. Stock verification – physical stock taking to confirm quantities and conditions of goods
10. Storage- secure custody, protection of stock from deterioration and safe handling
ofstores equipment
2. Lease/Hire of Storage Accommodation

A famous quote by Donald B. Grant says, “Why own a cow when the milk is so cheap? All you
really need is milk and not the cow.” A Lease can be defined as an arrangement between the
lessor (owner of the asset) and the lessee (user of the asset) whereby the lessor purchases an asset
for the lessee and allows him to use it in exchange for periodical payments called Lease Rentals
or Minimum Lease Payments (MLP). Leasing is beneficial to both the parties for availing tax
benefits or doing tax planning.
Type of Leases
Leases are classified into different types based on the variation in the elements of a lease. The
most common are Financial and Operating lease. Others are the Sale and Leaseback and
Direct lease, Single Investor lease and Leveraged lease, and Domestic and International
lease.

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Operating Lease – is where risk and rewards are not transferred completely to the lessee. The
term of a lease is very small compared to the finance lease. The lessor depends on many different
lessees for recovering his cost. Ownership along with its risks and rewards lies with the lessor.
Here, a lessor is not only acting as a financier but he also provides additional services required in
the course of using the asset or equipment.
User(Lessee) selects asset from supplier(lessor) and pays fixed rental, user may retain ownership
(residue value), owner is responsible for insurance and maintenance of building.
Finance Lease – also known as Full Payout Lease, is a type of lease wherein the lessor
transfers substantially all the risks and rewards related to the asset to the lessee. Generally, the
ownership is transferred to the lessee at the end of the economic life of the asset. The lease term
is spread over the major part of the asset life. Here, a lessor is only a financier. An example of a
finance lease is big industrial equipment.
User selects asset from supplier and pays fixed rental, user is responsible for insurance and
maintenance. It is usually for short-term asset financing by bank.
Other types
In the arrangement of sale and leaseback, the lessee sells his asset or equipment to the lessor
(financier) with an advanced agreement of leasing back to the lessee for a fixed lease rental per
period. A direct lease is a simple lease where the asset is either owned by the lessor or he
acquires it. In the former case, the lessor and equipment suppliers are one and the same person
and this case is called ‘bipartite lease’. In a bipartite lease, there are two parties. Whereas, in the
latter case, there are three different parties viz. equipment supplier, lessor, and lessee. And it is
called a tripartite lease. Here, equipment supplier and lessor are two different parties.
In a single investor lease, there are two parties – lessor and lessee. The lessor arranges the
money to finance the asset or equipment by way of equity or debt. The lender is entitled to
recover money from the lessor only and not from the lessee in case of default by a lessor. Lessee
is entitled to pay the lease rentals only to the lessor. Leveraged lease, on the other hand, has
three parties – lessor, lessee, and the financier or lender. Equity is arranged by the lessor and debt
is financed by the lender or financier. Here, there is a direct connection of the lender with the
lessee and in a case of default by the lessor. The lender is also entitled to receive money from the
lessee. Such transactions are generally routed through a trustee.
When all the parties to the lease agreement reside in the same country, it is called domestic
lease.
The International lease is of two types – Import Lease and Cross-Border Lease. When lessor
and lessee reside in the same country and equipment supplier stays in a different country, the
lease arrangement is called import lease. When the lessor and lessee are residing in two different
countries and no matter where the equipment supplier stays, the lease is called cross-border
lease.
Factors that influence warehouse Operating Lease/Hire Decisions

1. Lack of capital to build own warehouse
2. Lack of space on site for building anew warehouse
3. Higher rental charges of warehouses in urban areas influence options available
4. Seasonal fluctuations of bulk stocks do not favour ownership of warehouses
5. Short-term construction projects
Lease/Hire contracts
Lease Hire Contract should cover the following:
 Whether whole building is to be hired
• Period of hire and notice before termination

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• If building is to be lighted and security installed

• Who will provide loading labour and handling equipment
• Responsibility for damage to building and stock
• Responsibility for accidents, fire and theft
• Insurance of building and stock
• Arrangements to access building for stock-taking
Factors that affect Location/Site of Warehouse
Site or location of new warehouses is based on assumption that there are no unusual/
unreasonable restrictions on site or size. The following factors affect warehouse location;
1. Layout and flow of Building - The optimal design of any warehouse is determined by
thetype of operations that would be conducted inside it. Remember that the old buildings
are not very useful in carrying out the material flow for any business. Certain factors such
as ceiling height, as well as column spacing, can restrict the type of equipment that can
be accommodated in the given space. It can also hamper the inward flow of raw materials
and the outward flow of finished products.
2. Availability of Skilled Workforce - warehouse should be in the area that will have an
adequate supply of mix skill sets of labour to facilitate the operations adequately. The
locations that are linked to high-density residential areas with negligible worker
transience can be an ideal choice of warehouse.
3. Zoning and Desired customer base – this depends on how intense operations are, in case
the activity demands light assembly, you can choose the location of warehouse that has
less intensive usage. also consider other factors like emissions, noise levels and the
availability of outdoor storage. These requirements will also influence the industrial
districts that you can target for your future operations.
4. Size of the Warehouse - Size, of course, is an obvious criterion. Your warehouse facility
must be capable of accommodating your inventory and fit in the size of your company’s
requirements. For all startups and new companies, it is essential to ensure that there is
enough room around the facility for expansion. This will help save time and money when
your business is riding high on the ladder of success
5. Proximity to Major Linkages - it is essential to have your site easily accessible to such a
means of transport. Besides this, proximity to your customers is another factor that you
must consider. if most of your products are exported by sea, and the remainder is
delivered via land to the retail locations, it is imperative for you to have a comfortable
railway and highway access. Always remember that more than 20% of your cost comes
from transportation of the goods
6. Material Handling Capabilities - the availability of the handling equipment and staging
facilities is a key consideration. In case the primary model is a truck, make sure the
facility has the depressed docks. Ask yourself whether there is a need for docks to be
internal. It is certain that a highly intense distribution use will often require cross-docks?
(A loading dock is a recessed bay in a building, where trucks are loaded and unloaded.
Commonly found at manufacturing plants, warehouses and other industrial buildings. They are
the primary location of the movement of product, coming in and out of a facility. 5 types; Flush
docks, Cross docks, Depressed docks, Open docks, Enclosed docks and Saw-tooth docks;
Depressed docks have a sloped driveway. They are used where building construction
eliminates basements and dock level floors. Take caution in planning the grade of the
driveway, it should not exceed 10%. This is so the top of the truck will not hit the wall of the
building, as this can lead to the toppling of cargo.
Cross docking, is a logistics procedure where products from a supplier or manufacturing plant
are distributed directly to a customer or retail chain with marginal to no handling or storage

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time. Cross docking takes place in a distribution docking terminal; usually consisting of
trucks and dock doors on two (inbound and outbound) sides with minimal storage space.)
The geographical area of customers - Optimum location warehouse is influenced by the

geographical area of customers to be served
It should not be in an area congested with traffic but should be near a highway with good
communication
1. Should be near main railway line with raised floor to allow construction of sidings
2. Site should be level, well-drained and with water and electricity
3. It should have adequate space for vehicle turn around, and area for future expansion or
for having stockyard
4. Surrounding land should not be expensive
3. Warehouse Conversions
When investors and developers convert old unused warehouse and loft spaces in and around
major cities into large, open plan apartments they are called warehouse conversions, or loft
conversions.
Many people are attracted to the buildings that have character and history in their very structure.
With new developments this can either be incredibly expensive, or most likely impossible to
recreate. The buildings can also provide a blank canvas for many looking to create their own
loftstyle apartments. converted houses contain character and history uncommon in different
styles of older buildings and mostly absent in new developments. They also differ in their open
plan design. High ceilings and few or no dividing walls provide a wonderfully inviting living
area unlike most you can find in other types of property.
Benefits of a warehouse conversion

• Large open plan spaces which are perfect for entertaining
• You can try your hand at interior decorating, treating the space as a blank canvas
• In a good area with strong market presence you can sell for a great return
• Often in inner city areas with access to transport and the CBD
• You can convert into commercial space if residential demand is low
Disadvantages
• Depending upon your financial situation, it can be difficult to find a lender willing to
approve your warehouse conversion
• It can be difficult and expensive to complete
• Once completed the properties can be hard to sell
• Difficult and expensive to heat during winter
• Safety in industrial areas may be harder to guarantee
• Urban amenities in the area may be scarce such as transport and shops
Warehouse conversions usually come in two distinct flavours; residential and commercial.
Banks and lenders will take this into account as it affects the probability of selling the renovated
space, as well as the probable cost of renovation and possible return on the sale.
Residential conversions are those specifically transforming the space into a liveable area. This
includes kitchens, bathrooms, bedrooms and the main living space.
Commercial conversions are slightly different. Sometimes they can be converted to be used in
light industry such as seamstress or printing services. Often they are used primarily as office
space and left fairly bare, similar to empty office buildings.

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Construction of Storehouse/ warehouse

After site of warehouse has been chosen, the next consideration is the size, shape of warehouse
to be constructed that will be in use efficiently for many years.
Features/types of a Storehouse:
1. Single- storey/ multi –storey building
• The cost per cubic feet of storage space is much cheaper with construction of
singlestorey
• The weight-carrying capacity of upper floor in multi-storey will depend on structural
design
• Material handling costs in multi-storey building are much higher due to transportation up
and down the floor
• There is Advantage of Use of natural daylight in single-storey
• It is easier to arrange for Ventilation in single-storey
• High-rise forklifts enables stacking in vertical space in a single-storey
Where to use multi-storey stores:

• To serve production dept. already operating in Multi- storey floor
• Where land available is restricted in size or very expensive to acquire
2. Floor
• Must have adequate strength , hard-faced concrete and smooth finish with minimum
floor obstacles
• The floor should have non-slip surface
3. Structure/ framework
• The height of building should be high enough to allow use of double-tier stacking
• Store layout should be flexible without permanent partitions to allow future requirements
4. Doors
• Should be wide enough and high enough to allow all vehicles and material handling
equipment
• Capable of be securely fastened and locked.
• Designed to quickly and easily be opened and closed e.g. roller doors
• Door floor should be elevated from ground level to prevent rain water coming into
storehouse
5. Receipt and Dispatch Docks
• There should be a receiving and dispatch dock area
• Should be covered area for vehicle loading and unloading
6. Offices
• Offices should be provided for stores staff.
• Portable steel partitioning is best for offices inside the storehouse
7. Lighting
• Should take advantage of natural lighting for storehouse
• Lighting fittings should not be on the way of forklifts or other material handling
equipment
8. Ventilation
• Fan-driven units suspended from the roof should be considered
• Air-conditioning can be used for products liable to deterioration e.g. horticultural
products
9. Fire Risk features
• Water mains hydrants should be located near storehouse

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• Overhead smoke detectors and overhead water sprinklers may be installed

10. Ancillary Services
• Construction of washroom facilities and public parking area
• Provision of First aid kits near storehouse
11. Extension
• Construction of storehouse should make provision for future extension or change of use
Storehouse/ Warehouse Design

The Design of Storehouse may have to conform to general design of other adjacent
buildings. 1. Separate/ Attached storage accommodation design Case for Separate stores:
• Separate store will be more independent in its operations –less interference from other
department
• There is no confusion over transport for production items and items for stores
• There is no competition for material handling equipment for stores with other depts. 
Security of stock items is improved Case for Attached stores:
• Cheaper to construct attached stores
• Sharing of transport or material handling equipment thus reducing overall costs
• Store is readily available to users thus provide off-the-shelf service and minimize
transport delays.
• Less material handling labour is required as staff are shared with other depts.
2. Mezzanine Floors design
• Where horizontal space for extension of storehouse is expensive use of mezzanine storage
should be considered
• Mezzanine storage doubles available floor space though natural lighting is not available
in the lower storage area.
Stockyards
Stockyards are outside open air storage facilities used for heavy, abnormal length/ sizes and for
non-perishable materials.
Disadvantages/ Short-coming of using stockyards:
a) Stock is scattered making stock control very difficult
b) Absence of fencing or containers increase risk of theft or authorized issues
c) Road surface are often poor hindering the use of handling equipment
d) Badly drained ground become water-logged causing deterioration / corrosion of stockand
also hinder access to stockyards
e) Lack of lighting makes night work impracticable
f) There is excessive use of manual labour as use of material handling equipment is
restricted
How to overcome disadvantages of using Stockyards

a) Enclosing stockyard improves security
b) With provision of manned gatehouse and weighbridge minimizes possibility of fraud
c) Construction of hard-faced concrete yard with adequate drainage avoids deterioration
ofmaterials
d) Construction of Adequate road access speeds up the turnaround of transport vehicles
e) Properly stacked and labelled materials enables stock-taking and stock control
f) Yard layout construction enables use of modern material handling equipment which
minimizes use of manual labour.

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KIM LECTURE NOTES

EVENING CLASS
TOPIC 2. STOREHOUSE OPERATIONS

The goal of warehouse operations is to satisfy customers’ needs and requirements while utilizing
space, equipment, and labor effectively. The goods must be accessible and protected. Meeting
this goal requires constant planning and ongoing change.
Storehouse layout
While designing a warehouse, you should put much emphasis on achieving optimum storage
abilities. The Warehouse Layout Design adopts FAST (Flow, Accessible Space, Throughput)
Approach. The following are factors that will enable the construction of a very profitable
facility.
1. Flow
Storehouse must be designed to allow for free movement of products. logical sequence of
operations within the warehouse where each activity is located as close as possible to that which
precedes it and similarly, the function that follows it. All the closely related activities, or events
that precede one another, must be placed together conveniently. This process is to avoid time
wastage. You must consider having a system with minimum clashes, which has a very smooth
flow of goods, traffics, and people. A design that can achieve and maintain good flow also serves
to provide convenience in accessing products.
2. Accessibility
We are not just focusing on whether or not we can access the product. We want to get products in
the required amount. Constructing your warehouse in a design that can allow easy access of
every pallet is very essential. The layout should provide not only access of the pallet in arrow but
also individual pallets. The whole space in the warehouse must be put into proper use to give
quick access to items. For pharmaceutical product, the arrangement of the goods on the shelf
should be in a friendly manner to facilitate fast and easy identification, along with removal from
the shelf.
3. Space
While designing a warehouse, we put much emphasis on the storage and processing space. Space
allocated for processing and storage activities should be more compared to space left for other
minor activities. In your design, consider the current trends. Nowadays, the technology provides
equipment, which can stand alone, and does not require wall support. That means you do not
have to construct a durable wall, just put up a flexible wall that you can change it if need be. You
will also discover it is cheaper to build such a wall and easy to go with the current changes.
4. Throughput
Here, we are looking at the type of the product and the speed at which it flows through the
system. We are watching the handling of the goods. Check all the factors that will impact on the
rate at which the product moves in the system. Some of the factors, in this case, include bulk,
fragility, and flexibility. Any warehouse layout can be a perfect design if it achieves an optimum
throughput. Try to optimise the volume of products moving through the warehouse on a daily
basis at all times. Your storage design layout should offer enough space for workers and
machinery to get the greatest throughput possible. 5. Local authority plans
We have several rules and laws provided by the government that will determine how you design
layout. It is important that you comply with state rules. They are always enacted to ensure the
safety of every worker in the warehouse. For example, during construction that entails additional
up-floor (mezzanine), you must first prioritise the safety of the workers. In case designers are not
observant of the laws given by the government, they risk being fined or jailed. Every layout

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design, whether small or large, has a specified method stated clearly and explained by the local
authorities on how they should be done. 6. Site details
The characteristics of the particular place (site) will determine the final layout design. The
topography of the site, along with other factors, including drainage and ground status will decide
the designing. You must have a layout that proves to stand firm on the situated place. For
example, if the area is poorly drained, flooded water can negate the integrity of all the products,
which are water sensitive. The warehouse must be specially designed with a raised floor to
protect all the items.
7. Financial consideration
Before setting up on a particular design layout, consider the amount of money at hand. You must
make sufficient budget that will facilitate the construction from the foundation up to roofing. Do
not to engage in a project that may fail on the way. Some of the design layouts are more
expensive than others. Consider a layout, which is economically friendly. In most cases, a costly
solution will automatically result in profitable production. Other factors including management
and work coordination are involved in achieving the optimum productivity. 8. Building factors
An existing building can determine a design layout. In some circumstances, an owner might
decide to improvise an existing building, to change it into a warehouse. In such an event, owners
must ensure that the building meets almost all the necessary requirements. It should be spacious
and safe. All in all, existing building significantly affects the design layout; and it is evident that
it will not completely match an ideal warehouse design. The chances are that it will be attached
to very many controversies.
Also, the design layout is affected by close buildings. Other neighbouring buildings might have
been constructed with protruding structures that eat into the space belonging to the expected
warehouse structure. In such conditions, the storage design layout must adopt some carvings to
fit into the surroundings.
9. Movement of people and equipment
Humans are the controller of every activity taking placed in the storehouse. They must be taken
care of in the design. If your warehouse is to accommodate a lot of people, it must have a design
layout that guarantees space and micro roads for smooth movement of people around. For proper
management and control of equipment, the design must be both safe and accommodating. Also,
the place should enable efficient hardware movement. Forklifts should be moved with less
difficulty from one location to another.
10. Cube design
People are adopting the cube design since it proves to be more efficient and profitable. Due to
their manageability, this design enables optimum utilisation of all the spaces available.
Straight Line Flow:

Ideal layout of store is straight line flow from Receiving area to issuing area at other end of
Stores building. In this layout goods inwards and goods outwards are on the opposite sides of the
building. All items must therefore travel the full length of the store. The layout also requires
separate goods in and dispatch management with dual yard access.
Advantage:
• The straight layout is useful where the goods in and goods out vehicle requirement is
different, such as in their platform height or where the nature of the unit load warrants the
separation of the Receiving and Issuing areas.
Disadvantage:
• this design has the limitation of extending stores building in future
U-Shape or Horseshoe Flow:

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Where Stores are not purpose build, U-shape or horseshoe layout is often an alternative. Goods
in and goods out activities are on the same side of the building
This Layout allows the use of high, medium and low usage areas to minimize materials handling
by locating high and low usage items respectively nearest to and furthest from the goods
received and goods outwards areas, thus minimizing materials handling for high usage items.
Advantages:
1. allows the use of high, medium and low usage areas to minimize materials handling in stores
2. Better utilization of receiving and issuing areas and the associated mechanical handling
equipment
3. The total area required is less than where there are separate loading and off-loading areas
4. Ability to extend the building (subject to site constraints) on one or more of three sides of the
warehouse
5. Unified bay operations provide for better security control and easier surveillance
Disadvantage
The main disadvantage is that the center stores aisle may become congested in high production
throughput situations
Separate store for Chemicals/ Inflammable materials
Having Separate Store for Chemicals and Inflammable materials is advisable as:
1. Hazardous material needs to receive special attention in terms of handling and storage by
stores staff.
2. Appropriate warning signs should be indicated at their storage location as well as on the
packages
Fixed Stock Location System
Stores should have a location system of identifying where each stock item is kept. This is done
through:
1. Dividing the stores into Stack sections and giving each a Letter
2. Each Bay storage fixture in section is numbered commencing from one end
3. Each Rack shelving in a bay is given a number
4. Finally, each individual bin holding stock is given a number
The storage location of each stock item is static i.e. every stock is in its place.
The code for stock item is usually the basis of determining the location of each stock similar to
way books are stored in a public library.
Advantages
1. There is code for each stock item hence quicker to locate items in stores
2. Items of similar nature are stored next to each other thus reducing movements
3. Easier to carry out stock-taking
Disadvantages
1. Spare/reserve storage code and space needs to be provided to avoid relocation of stock

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2. Difficulty to store - items are located out in a separate area of stores due to instoreability
3. Items that are frequently used are located near issuing point that are out of sequence
Where large stocks are involved it is advisable to have Bulk stores and general Stores.
Bulk stores arrangement reduces walking /selection time and enables quicker service to customer
Random stock Location System
Where stocks are fast moving, storage space is scarce and expensive, it is advantageous to use
random location system which in most cases depend on computer system to allocate code
numbers and stock location.
• The sections, bay shelving and bins are given location numbers as usual.
• When a new delivery is received it is placed in the available space and location is
recorded on the computer.
• When an issue/ sale is required location can be called up by the stores staff on the
computer at the counter.
• As soon as stock location is emptied, it is immediately available for new receipts of any
item
• It is necessary for stock record list to be amended to enable cross-referencing of stock
items with its location
Advantages
1. System allows maximum use of available storage space
2. Suitable for fast moving items which are of similar sizes /lengths and is normally used in
distribution warehouses and work in progress stores
Disadvantages
1. Has limitations if new stock has different sizes, shapes or weights from previous stock
2. Reliance on computer to determine location of an item before an issue / sale can be made
Due to great efficiency in the use of stores space and electronic data processing, use of random
stock location is steadily growing.
Materials Preservation
It is desirable for stores staff to have good knowledge of technical specifications, methods of
measurement, common defects and use of material/stock that is received and inspected by stores.
Materials will deteriorate in store over time and degree of protection is required:
1. Suppliers’ packaging
• Suppliers should ensure their products are delivered to customers in good condition
and fit for use. Bearings are greased, wrapped in sealed papers and put in cardboard
boxes.
• Suppliers special packages should not be broken open but should remain intact in
storehouse until items are issued for use
2. Order of Issue

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• The longer an item is held in stock the higher the risk of deterioration  For
above reason the oldest stock received should be issued / sold first
• Stocks with short shelf life date should be issued / sold as soon as possible.
3. Dampness (moisture)
• Damp is the stores worst enemy, it causes corrosion of metals, solidifies powders,
and discolors papers
• Storeroom should be fully air-conditioned or natural lighted and vented to prevent
humidity
4. Protective Measures
• Paint coating and galvanizing by manufacturer of steel
• Oiling or greasing by brushing, aerosol sprays and dipping of metal
components
Detailed protection:
a) Cement – should be stored dry, kept off the floor and supplied in stout paper
bags
b) Electronic components – are fragile to break, can be damaged by moisture,
can be damaged by magnetic field
c) Timber – can rot or be attached by fungi if it becomes wet
d) Metal – are liable to corrosion, needs coating with oil or grease
e) Photographic materials- should be kept from light, not exposed to extreme
heat or cold
f) Tyres – should be stored upright on their treads on racks, must be kept away
from extreme heat sources (e.g. boiler room)
g) Agricultural produce – are liable to germinate or attacked by mould or insect
pests, bagged grain must be kept dry and dusted with insecticides at intervals
h) Machinery and equipment – must be ‘cocooned’ in airtight covering plastic
materials
i) Textiles – are subject to damage by moths if they become damp, must be
treated with mothproof chemicals and bales wrapped in airtight packages
Redundancy of Materials
Redundant Stock – all usable material stocked in excess of requirements.
Redundant stock arises due to:
1. Result of over ordering – called surplus stock

2. Failure to relate stock levels to declining production/sales of certain items
3. Unexpected changes in demand due fashion changes
4. Where need of purchased stock ceases to exist - such stock is called Obsolete
Ways to minimizing occurrence of redundant stocks:
1. Ensure stocks levels are low as possible for materials probe to obsolescence ( replaced by
new deigns)
2. Ensure Stores and procurement staff are advised on changing marketing regulations,
production programs or design specifications

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3. Monitor changing patterns of consumptions in order to detect obsolescence early – e.g.

preference for Kadogo packaging
4. Ensure old material is used up before new material to replace existing ones is introduced
5. Matching ordered material with actual production requirement through MRP.
Disposal of Redundant Stock
If material held in stock is unlikely to be used, then it must be disposed/sold/ returned to supplier
as soon as possible at the best economic return.
The common methods of disposing redundant stocks are:

1. Circulate redundant list to other potential internal users
2. Negotiate with the supplier for return on agreed price or replacement with new design/
model
3. Advertise sale offers for purchase
4. Sell redundant stock by auction
5. Sell to a merchant (odds & ends) or dealer
6. Sell to own employees
7. Donate to a charity organization
8. Re-cycle the product before it expires
9. Dismantle assembly for spares
10. Destroy and dump ( eg Bata Shoe, Farmers choice )
Security in Stores Operations
1. Warehouse and stockyards Building

• Building should be of permanent concrete structure
• Doors to stores should be restricted to minimum number and fitted with locks
• Internal layout should provide for enclosed issue counter
2. Custody of keys
• All keys for stores should be numbered and registered on collection and return
3. Access to Stores
• Access inside the Storage area by suppliers and non-stores staff must be strictly limited
• During closed hours, there should be guards inside the stores premises or patrolling the
stores area after short interval
4. Marking valuable stock items
• To minimize theft (pilfering) stocks are marked with manufacturer’s serial numbers for
ease of tracing.
• All marked items must be returned to stores for destruction when they are replaced
• Invisible inks which are only revealed by ultraviolet light can also be used to mark
valuable stock items
5. Segregation of pilfer able Stock items
• Separate cabinets should be provided inside the storehouse for attractive goods that
should always be under lock and key kept by one store keeper
6. Electronic surveillance
• CCTV , video recorders or beam interrupters can be installed to ensure security of stored
items

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7. Statutory and material regulations

• All staff should be trained on statutory factory requirements Act and Dangerous Goods
regulations in respect to safety and handling of chemicals, petroleum products and
explosives
8. Inspection of Stores by External assessors

• At regular intervals external assessor should audit warehouses and stockyards to verify
stocks are in good order and physical condition are to the required standard
Safety in Stores Operations
Safety in stores operations is very important and all materials must be stored in a way that
minimize the risk of injury to staff or damage to goods or equipment.
• Correct straight- back knees -bent posture should be used always when manually lifting
items.
• Each staff is legally bound to take responsibility for own safety and the safety of others.
A. Safety considerations for stores operations:

1. Training of stores staff on stores hazards, safety awareness and instructions on manual
handling
2. Housekeeping to keep store tidy and safe. Properly marking gangways and walkways and
keeping them clear of obstruction.
3. Good working temperatures and lighting for staff plus level and even floors
4. Storage and handling equipment needs to be right for job and periodically maintained eg
step ladders and lifting equipment
5. Provision of Personal Safety items like helmets, safety footwear, gloves and dusk masks
6. Display Safety signs to prevent potential hazards, like ‘no smoking, inflammable
material’ etc.
7. Provision of safety equipment like 1st Aid kits, gas masks plus emergency contacts in case
of an accident
8. All chemical delivered to stores should be accompanied by MSDS
B. Fire Precautions
To minimize fires in the storehouse the following should be implemented:
1. Smoking should be prohibited and notices displayed to that effect

2. Fire prevention and fighting equipment like extinguishers, fire hydrant hoses should be
provided and inspected regularly
3. Staff fire drills should be conducted and instructions displayed
4. Provision of Fire 1st Aid training for stores staff
5. Emergency contact for Fire station, Air Force, G4S Fire Rescue should be availed to all
staff
6. Special stores for inflammable and petroleum materials should be build separate from the
main general stores
KIM LECTURE NOTES
EVENING CLASS

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TOPIC 3: MATERIAL HANDLING
Definition and scope of material handling

Material handling are the techniques employed to move, transport, store or distribute materials
with or without the aid of mechanical appliances /equipment’s
 The methods and equipment’s used for handling materials from the point of unloading of
goods on arrival to the point where goods are issued for internal use or dispatched to
external customers should been efficient
Material is issued from the warehouse to the shop floor in a user-defined way. You can choose to
take tight control over the issue process, or you can choose to control the issue process more
loosely. In general, the issue of material goes through the following stages:
1. Allocate material in the warehouse

A planned production order results in planned inventory transactions. These
transactionsare used for planning purposes by the MRP planning engine. As soon as a
production order is released, warehouse orders are created, which means that the
material in the warehouse is allocated for the production order. All materials specified
in the bill of material (BOM) are allocated in the warehouses, which is reflected in the
Estimated Materials (ticst0101m000) session. If you use shop floor warehouses, you
can determine the moment that the material is allocated in the shop floor warehouse.
2. Specify quantity to be issued

You must specify the material quantity that you want to issue. Depending on the setting
of the Manual Issuing check box in the Shop Floor Control Parameters (tisfc0100s000)
session, LN automatically specifies the planned quantity, or you can manually specify the
material quantity. Note that the material quantity is still blocked in the warehouse.
3. Release material
If you release the material in the warehouse, the material becomes unblocked, which is a
signal for the warehouse employees to start the warehouse outbound procedure.
4. Carry out the warehousing procedure

A user-defined warehouse outbound procedure is carried out.
5. Receive material
The desired material quantity is received on the shop floor.
Bills of Material:- it is document which shows the full listing for each material with the detailed
information of quantity issued against each component. The main purpose of documenting bills
is it helps in estimation of cost materials for collecting quotations.

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Material Requisition:– Material requisition is also known as Intend of Materials. It is a

document which is prepared by the production department for requisition of materials.
Material Requisition Note

It is the voucher of the authority as regards issue of material for use in the factory or in any of its
departments. Where a ‘Materials List’ has been prepared, either the whole of the materials would
be withdrawn on its basis or separate material requisitions would be prepared by the person or
department and the material drawn up to the limit specified in the list. The requisition notes are
made out in triplicate.
• The copies are distributed in the following manner
• One copy for the store-keeper
• One copy for the Cost Department
• One Copy for the Department requiring it
If no material list has been prepared, it is desirable that the task of the preparation of material
requisition notes be left to the Planning Department. If there is no planning department, (or
although in existence, is unable to undertake this task), the Requisition Note should be prepared
by the person or department, that requires the materials.
Usually a foreman’s authority is enough, but in the case of costly materials it would be desirable
to have such requisitions duly approved by some higher authority, like the Superintendent or the
Works Manager before these are presented to Stores.
Basic requirement for issuing of materials

Since large sums of money remain blocked in materials, it is essential for the custodian of
materials to ensure that the issue of materials are made only under proper authorisation.
Moreover, for efficient operation, the following points to be considered:
(a) Authorisation of issues (b)
Identification of requirements (c)
Timing of issues.
(a) Authorisation of Issues:
Since materials represents money, for the issue of materials there must be some authorisation by
responsible officers nominated by the management. Such authorisation should be given clearly in
the form of a directive circular.
The object is to avoid misunderstanding and unpleasantness that may arise due to the refusal by
the storekeeper to issue materials. In many industries, the designation of the person authorised to
draw materials along with their specimen signature are sent to the stores for verification.
The request for issue of materials is invariably made in written form or documents for proper
authorisation. It is the primary responsibility of the storekeeper to verify all such documents for
proper authorisation before the materials are issued.
Even though certain persons are authorised to draw goods from the stores, management normally
imposes a few restrictions for drawal of the goods beyond a certain level of consumption. In all
such cases, a clear directive must be given to the stores department.
(b) Identification of Requirement:

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Largely due to ignorance, in several cases the correct description of the items is not given by the
user department. Often the code number given may not tally with the description of the goods,
and vice versa. Hence an experienced store-keeper should use his intelligence to identify the
mistake and suggest to the indenter the correct item.
Details about materials requirements such as part number, code number, etc. ensure that it is
supplied without delay and unnecessary correspondence.
(c) Timing of Issue:
The stores manager should ensure that the indenting departments are fully aware of the timing of
issues. However, there may be sudden rush during the peak hours. This may put undue pressure
on the stores department and may lead to sudden stoppage of production, in case of undue delay.
So our intelligent store-keeper should study carefully the requirements of various departments
and stagger (spread) the timings in such a way that each department can draw their requirements
without loss of time.
Methods of Issuing of Materials

Issues from stores must be efficiently organised so that the requirements of the
production/operations department can be met.
1. Issue on request:
This is the most orthodox way of issue wherein the indenting department normally sends a man
and collects the materials from stores.
2. Issue per schedule:
In a batch production unit sometime, the requisition for issue of stores is sent well ahead
indicating when, i.e., the time and date it is required. The stores department will collect all the
materials and keep them ready.
Then it will intimate the indenting department about this. Depending on the prevailing practice of
the industry either they are collected from stores or delivered at the shop floor. This is desirable
in order to prevent any loss of man-hour caused by sudden absenteeism of a worker in the
production department.
3. Imprest issues:
In this system a list of certain items especially for tools and components and in specified
quantities is approved. The list is then held in a sub-store or tool kit near the shop floor.
4. Replacement issue:
In most engineering industries a large number of workshop machines are used. So there will be
considerable requirements of tools and gauges. When a fresh issue has to be made the machine
shop operator may be asked to return the old ones to the stores and obtain new one for
replacement. This is done without issue notes and the storekeeper has to maintain proper records
of such replacement.

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5. Loan issues:
The issue of stores on loan should, as far as possible, be discouraged. Situations often arise
where some amount of spares; electrical fitting, etc. are required on emergency basis due to some
breakdowns. In such cases the materials are to be issued on a loan basis. However, the
storekeeper is to maintain a separate record and ensure that they are returned before year-ending
when annual stock-taking begins.
6. Stock records:
In a store-house where thousands of transactions take place some amount of records are to
maintained. This makes it possible for the storekeeper to make an entry of all transactions.
Benefits of proper material handling system :

1. Reduced handling costs – no double handling of material
2. Greater economy in the use of space ( through higher storage density by eg stacking )
3. Reduced risk of damage of stocks
4. Reduced labor requirement – as labor is inefficient
5. Less fatigue to the material handling staff
6. Increased safety – reduced accidents
Requirements of efficient material handling system:
1. Location of storehouse -To reduce cost of material handling , Stores should be as near as
practicable to the point where materials will be used
2. Material handle ability – procedures for handling of heavy, bulky and susceptible to
damage materials should be documented.
3. Case for use of manual handling – wheel barrows, hand-pallet trolleys are cheaper to
operate and effective unless there is high frequency movement of materials
4. The method of packaging of incoming material – suppliers should be instructed to pack
materials in quantities that may be handled in stores with minimum human effort
5. Economy of movement – double movement of materials due to requirement for user
inspection before storage should be avoided
6. Selection of suitable mechanical handling equipments for the following purposes;
a) To cater for materials too heavy to be handled manually
b) To save time on unloading and moving materials into stores location
c) To save costs on use of manual labor
d) To save storage space through use of high stacking forklifts
7. Training of handling equipment operators – drivers and other operators should be trained to
minimize damage to equipment , building , materials and also instructed on need for safety
precautions to at all times
Assessment before selection/purchase of mechanical handling Equipment
1. Ascertain the tonnage of load to be moved and future production requirement

2. Consider the types of delivery vehicles and how they are to be off loaded
3. Examine the nature and weight of all packages and materials to be handled
4. Examine possibility of using existing bins and racks at location

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5. Consider the height , length, width of storage space and layout of stores building
6. Ascertain operating space requirements, lifting power , purchase price, running costs of
handling equipment
7. Assess the labor force required to operate new equipment
8. Check the counter/ bay arrangements required for equipment to handle stores issues and
finished goods
Material Handling systems and associated equipment
A. Hand – operated Equipments
1) Wheel barrows – ideal for carrying small quantities of loose materials especially in
stockyards
2) Supermarket Trolleys – stores attendant wheels the trolley to various racks or bins
picking out stock items and taking the load to the issue counter. Incoming materials are
taken to their appropriate stores locations by reverse process
3) Hand stacker – A two- wheeled vertical framework with platform which is raised or
lowered for stacking and unstocking of packaged stocks
4) Hand pallet trolleys – is fitted with two forks that can be lowered to the ground level to
handle palletized packages
5) Roller conveyors – Metal framework with horizontal rollers at intervals. materials are
pushed on top of the rollers from receiving area to dispatch area
B. Power – Driven Equipments
1) Fork Lift truck – the most important type of mechanical handling equipment is the
forklift . can be used to move materials in stockyards or for stacking of pallet loads.
2) Side-loading reach truck – the lifting mast and forks are projected from the side of the
truck. These trucks are useful for handling of lengths of materials such as pipes or timber
that can be moved alongside aisles in stores where reach truck can operate in a gangway.
3) Tractors with trailer – the use of two or more trailers per tractor is economical because as
one trailer is being transported the other is being loaded or unloaded.
4) Mobile Crane – these crane is fitted with hooks to lift container loads. Crane can also
have attachments to lift buckets of loose materials.
Cross – Docking
Cross docking is a logistics procedure where products from a supplier or manufacturing plant are
distributed directly to a customer or retail chain with marginal to no handling or storage time.
Cross docking takes place in a distribution-docking terminal. In simple terms, inbound products
arrive through transportation such as trucks/trailers, and are allocated to a receiving dock on one
side of the ‘cross dock’ terminal. Once the inbound transportation has been docked its products
can be moved either directly or indirectly to the outbound destinations; they can be unloaded,
sorted and screened to identify their end destinations. After being sorted, products are moved to
the other end of the ‘cross dock’ terminal via a forklift, conveyor belt, pallet truck or another
means of transportation to their destined outbound dock. When the outbound transportation has
been loaded, the products can then make their way to customers.
The objective of cross- docking is to combine inventory from multiple origins for a specific
customer.
• Cross-docking requires precise on- time delivery of products that are well labelled from
each manufacturer

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• As products are received and unloaded at the warehouse, they are sorted for dispatch by
destination.
• Products are then moved across the Dock from receiving area into a truck / ship dedicated
to the delivery destination.
• The high degree of precision required for effective cross-docking makes operations
dependent on information technology to manage loading and movement of products from
manufacturer / supplier to final customer.
Cross – Dock distribution center
• Emphasize is movement/ transportation of products from distribution center with minimal

storage.
• Flow-through distribution for high volume, fast-moving products where customer order
requirements are reasonably predictable.
• Products are quickly unloaded, de-unitized, assorted by customer orders and loaded into
trucks / ships for transportation to final customer destination.
Cross -dock Products movements:
Receiving docks
Storage area for high-
volome products
storage space for
storage space for low-
low-volume volume products
pro d ucts
Staging and cross-
dock area
Shipping Docks

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KIM LECTURE NOTES

EVENING CLASS
TOPIC FOUR : INVENTORY CONTROL

The role and importance of inventory
The traditional approach to efficient inventory management seeks to balance between a large
inventory, capable of continuously providing needs and a small inventory, keeping inventory as
low as possible. In contrast, contemporary management philosophy holds that efficient
management of supply of pipeline may obviate the need for inventories altogether.
It should be understood that efficient inventory management in Kenya, would operate

somewhere between these two extremes, i.e. some inventory the eliminating the supply risks
peculiar to Kenyan supply market while at the same time implementing MRTI, JIT and lean
supply concepts in an Endeavour to be more competitive.
Reasons for holding stock
Apart from availability problems and the fact that continuous supply of inventory cannot be
guaranteed with absolute certainty, additional reasons include: -
(a) Delivery cannot be exactly matched with usage day by day.

(b) Economies associated with buying or manufacturing in large quantities more than offset the
cost of storage.
(c) Operational risks require the holding of stock to guard against breakdown or programme
changes.
(d) For work in progress where completely balanced production flows is impracticable.(e) For
finished products where the holding of a butter stock between production and the customer
is desirable.
(f) Owing to fluctuations in the price of a commodity it is desirable to acquire stocks when
prices are low.
(g) In order that material may appreciate in value through storage e.g timber, wines and
spirits.(h) In order that customers may be attracted by a range of products from which to select.
Factors affecting stock holding policy.
This is influenced by four main considerations.

- Operational need.
- Time required obtaining delivery of goods.
- Availability of capital.
- Cost of storage.
1. Operational need: The user’s desire is from immediate availability of all materials,
stores and spares

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which may be required under any circumstances, with no risk whatever of failure of
supply.
2. Delivery time: As regards time of delivery, some goods can be obtained ex-stock from
suppliers, but in many cases, weeks or months must elapse between the date of order and
receipt.
3. Availability of capital: Goods in stock represents working capital and the business will
have to provide this capital either of its own resources or by borrowing a bank or
elsewhere.
4. Cost of storage: The factors comprising cost of storage are:

(a) Interest on the value of stores in stock.
(b) Operating expenses of storehouse.
(c) Loss and deterioration of stock.
(d) Obsolescence.
(e) Insurance.
(f) Stock checking.
(g) Recording and accounting.
INVENTORY HOLDING/CARRYING COST

The aim of inventory management is to hold inventories at the lowest possible cost, to
ensure uninterrupted supplies for on-going operations. The elements of inventory costs are: -
- Inventory holding costs.
- Ordering costs.
- Costs of inventory shortages.
- Set-up costs.
Inventory holding costs consist of the following: -
(a) The cost of financing the inventory.

(b) The cost of storage, that’s the costs of having warehouse, maintenance costs etc.
(c) Costs of handling inventory.
(d) Insurance to reduce the risk of loss due to damage or theft.(e) Technical as well as
economic depreciation of inventory.
Ordering costs
Every order placed by an organization incurs the following costs: -

Administrative costs for placing the order.
- Follow up costs.
- Costs of receipts and quality control.
- Payment of the supplier’s invoice cost.
Costs of inventory shortages

The costs of shortages in production inventory often related to the following factors:-
Increased transport costs.
- Increased adjustment or overtime.

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- Costs in the plant.

- Additional administrative costs.
- Costs resulting from cancelled orders.
STANDARDIZATION
Standardization may be defined as the formally accepted uniform inherent characteristic of items
in terms of specific measurements, design, composition, performance, quality and the general
use.
The formal acceptance of standard items is derived mainly from three sources: (a)
International standards – ISO 9000.
(b) National or industrial standard – KEBS.
(c) Business standards.
Standardization implies that the characteristics of items have to comply with a specific minimum
acceptable standard, but at the same time, the types, sizes and grades of an item are limited.
Standardization would lead to: -

1. Less stock needs to be kept when a standard item is suited to many applications and this
reduces inventory-carrying costs.
2. Large quantities being ordered at a time, creating the opportunity for negotiating quantity
discounts.
3. Reduction of total cost of ownership (TCO), since standardized procedures, terminology,
and process will increase the ultimate value to the customer.
4. Facilitation of inspection and quality control of incoming goods.
5. Elimination of mistakes and doubts when orders are placed since the standard description
can be used.
6. Improvement of the firm’s competitive position, since the usually cheaper standard
description can be used.
7. Standard items are readily available.
8. Standardization may ensure better labour relations as a result of faster and less
complicated training, increased productivity and consequently a higher personal income.
9. Reduction to global logistics costs, since packing sizes are also standard etc.
VARIETY REDUCTION
This is the process of reducing the number of varieties stocked to a controlled workable
minimum.
Advantages of variety reduction 1.
It reduces the cost of holding stock.
2. It reduces money tied up in stock.
3. It makes it easy to write specifications during ordering.
4. Makes it easy to manage inventory because of the narrow range.
5. There are fewer supplies to deal with.

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Procedure for variety reduction

A variety reduction programmed involves a complete examination of commodities stock to
determine: -
a) The use or users for which each item is intended.
b) Which items have similar characteristics and can be used as substitutes for each other.c)
What range of sizes is essential?
d) Which items can be eliminated?
e) What specifications are necessary for retained items?
Stock Control Methods
Stocks may be held for a variety of reasons. They may be stocks of raw materials ready for
production, they may be work-in-progress (production part way through the production process)
or they may be stocks of finished goods. Whichever they are it is vital for the firm to control the
level of stocks very carefully. Too little and they may run into production problems, but too
much and they have tied up money unnecessarily.
The main theories about stocks then are to do with stock control. There are various different
ways to approach stock control:-
• Fixed re-order stock level

• Fixed time re-ordering
• Economic order quantity
• Just-in-time
STOCK LEVELS
FIXED RE-ORDER STOCK LEVEL
This method of stock control is where a business decides the minimum level of stocks it can
tolerate, and then re-orders before the stocks reach this level. The exact timing will depend how
long the stocks take to arrive. This can be illustrated as follows:-
The distance between the re-order line and the minimum stocks level depends how long it may
take for the order to arrive - this time is known as the lead time.
FIXED TIME RE-ORDERING
This method is exactly as its title suggests. The firm re-orders stocks at a fixed time each month
or week. It can offer a good solution as it represents a routine for the firm and ensures that stocks
are regularly supplemented. However, it may well mean the level of stocks fluctuating quite a bit
depending on the rate they are used up. It is a little inflexible as a system as well unless used
very carefully.
ECONOMIC ORDER QUANTITY
For any company there is an optimum level of stocks. The precise level of this will vary in
different firms and industries. They have to balance the costs of holding stocks (the space taken,

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the money tied up etc.) with the costs of ordering stock. The more firms order at once, the better
the deal they will usually get.
The level of stocks that strikes the balance between these two things is known as the Economic
order quantity. If this is taken to be the optimum level of stocks it should help to minimise the
firm's costs - an important pre-requisite to maximising profit.
JUST IN TIME (JIT) INVENTORY PHILOSOPHY
Just in time is product oriented management philosophy perfected by Japanese industrialists to
eliminate all forms of waste – whether of time, labour, raw materials or materials.
The just-in-time method involves keeping stocks to an absolute minimum, and the raw materials
are ordered only when they are needed. In other words just-in-time. This time period in some
cases has been reduced to minutes or hours, and the raw materials arrive on site moments before
they are needed. This can be wonderful for helping to reduce the need for working capital, but
requires a very high level of organisational skill and a very close relationship with suppliers.
JIT has been defined as: -

The discipline and continuous problem – solving approach which eliminates all forms of
wastage by employees, suppliers, product design and process design in order to deliver all forms
of goods and services at the right time and place.
JIT system is designed to eliminate inventories of raw materials and purchased products ready
for marketing to the customer. This objective is achieved by closely synchronizing deliveries
from suppliers; deliveries to internal departments and final products to customers with the time
when this items are needed.
Characteristics of JIT System
1. A commitment by top management and continues improvement and the elimination of

waste.
2. A participatory management approach.
3. An increased emphasis on TQM.
4. Reduced purchasing quantities.
5. Regular deliveries and highly reliable delivery schedules.
6. A reduction of suppliers to a few good ones.
7. Shortened and highly reliable internal and external lead times.
8. Respect for people and a strong focus on external and internal customers.
Advantages of JIT
a) Lower inventory levels are achieved as a result of large number of small deliveries
demanded by JIT.
b) Small butter stock is achieved, owing to the nature of supply market.
c) Shot and reliable lead times improve the adaptability of the production schedules.
d) Quantity improvement. The higher quality of products purchased translates into an
improved quality of products produced.
e) Cost savings: The business relationships between purchasing and supplier to reduce costs.
FORECASTING TECHNIQUE IN RELATION TO DEMAND

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Forecasting methods for demand are classified according to the following four methods:-
1. Qualitative: - Qualitative forecasting methods are primarily subjective and rely on

Human judgment. They are most appropriate when there is little historical data available
or when experts have market intelligence that is critical in making the forecast.
2. Time series: - Time series forecasting method use historical demand to make a forecast.
They are based on assumption that past demand history is a good indicator of future
demand. This method is most appropriate when the basic demand pattern does not vary
significantly from one year to the next.
3. Causal: - This method assume that the demand forecast is highly correlated with certain
factors in the environment, (e.g. the state of the economy, interest rates etc), for example
product pricing is strongly correlated with demand companies can use casual method to
determine the impact of price promotions on demand.
4. Simulation: - Simulation forecasting methods imitate the consumer choices that give rise
to demand to arrive at a forecast. Using simulation, a firm can combine time series and
causal methods to answer such questions as – what will the impact of a price promotion
be? Etc.
A company may find it difficult to decide which method is most appropriate for forecasting.
Several studies have indicated that using multiple forecasting methods to create a combined
forecast is more effective than any individual method.
Characteristics of Forecasts
Companies and material managers should be aware of the following characteristics of forecast:
1. Forecasts are always wrong and should therefore be the expected value of the forecast
and a measure of forecast error.
2. Long term forecasts are usually less accurate than short-term forecasts; That’s long-term
forecasts have a larger standard deviation of error than short-term forecasts.
3. Aggregate forecasts are usually more accurate than disaggregate forecasts as they tend to
have a smaller standard deviation of error. (i.e. its easy to forecast the GDP of Kenya for
a given year with less than 2% error)
In general the further up the supply chain a company is, (or the further they are from the
consumer) the greater the distortion of information they receive
Visual Approaches to stock control

There are several visual methods of control, which still find application in the modern warehouse
despite the widespread adoption of computer based methods. They include: -
1. The two-bin system: - This is a useful and straightforward approach that depends on the
use of two separate containers, one in current use, and another in reserve. When the
current container is exhausted, the second container, which is usually sealed is brought
into use.

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2. The imprest method: - This is employed where a set level of stock is predetermined for
the item and regular inspections are made so that the bin can be topped up to the correct
level. This method is often found useful where subsidiary stocks of material are kept a
part from the main stock. Care has to be undertaken when establishing the imprest level
because too high a level might encourage wasteful use of the material while too low a
level will lead to frequent replenishment.
3. The exchange basis method: - By this method, a used item is presented as evidence that a
replacement is necessary and an exchange can be made (e.g. a tool store where a worn
item is exchanged for a new one etc)
Programming Deliveries
In factories where there are fixed production schedule, the requirements of production
materials and determined in advance. In such conditions, it is convenient and economical to
place standing orders with suitable suppliers and then programme their deliveries at a given
rate per day, week or month. This is common in the automobile and component industries.
The advantages includes: -

- Gives the maximum certainty of delivery.
- Simplifies the problem of provisioning.
- Avoids unexpected fluctuations in stock.
Ordering quantities
Irrespective of the system of stock control in use, it is clear that, if large quantities are
ordered on an infrequent basis, then the risk of being out of stock will be diminished and the
cost of acquisition will also be reduced.
However, this savings will be offset by the higher average, investment in stock leading to
greater stock holding costs.
If a policy of ordering and often is adopted, then the stockholding costs will be reduced,
while ordering costs rise. The possibility of running out of stock will also be greater.
LEAN SUPPLY AS A RELATED CONCEPT IN INVENTORY MANAGEMENT

Fundamental to the development of lean supply is the drive to identify duplication and waste.
Any activity that does not add value adds costs and should therefore be eliminated. The
following are features of lean supply:
- Lean supply implies managing the collaborative effort between supplier and customer to
address the problem of costs associated with inventories and to minimize them.
- Cost transparency: Genuine sharing of data implies a mutual search for ways in which to
reduce inventory in the suppliers and buyer’s organizations,

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- Research and technology: New technology in fields such as EDI, coding and
transportation, is much easier to discover and to implement resulting in cost reductions in
the supply pipeline.
- Relationship assessment: This implies that the management in the relationship should be
evaluated and not the inventory performance of any one of the partners. (Other method)
MATERIAL REQUIREMENTS PLANNING – MRP I

An MRP system entails a computer – based system used to synchronize the supply of material,
components and subassemblies with production planning and scheduling so that inventory may
be limited to the absolute minimum.
Definition: - An MRP system is a computerized information system that integrates the

scheduling and control of materials through logically related records, procedures and decision
rules with the master production schedule – (MPS) into time phased net requirements for each
inventory item.
The MRP system uses planned production to determine what and how much should be ordered,
when to order and on what date delivery should take place.
MRP 1 INPUTS
The following inputs are essential for the successful implementation of materials requirements: -
1. A master production schedule (MPS):- this specifies the firm’s requirements for final
products by time period.
2. A bill of material (BOM): - This is for each final product in the MPS, which defines the
components that the final assembly process needs to complete that product.
3. Inventory status file: - This provides information on the status of all scheduled incoming
components.
4. The planned lead-time of every process required. These represents the total time needed
to produce a product.
Characteristics of MRP1 System.

a) It uses electronic data-processing equipment to calculate in advance the inventory
requirements for a particular period.
b) Inventory holding is reduced to a bare minimum by synchronizing materials flow and
production scheduling.
c) The MPRS is the guiding tool for MRP system.
d) The demand for materials can be calculated by means of MRP system, which is more
reliable than forecasting.
e) The MRP system eminently suited to the supply of production materials in manufacturing
enterprises.
Advantages of MRP System

Forges closer linkages with suppliers and user departments.
1. Decrease in inventories of purchased parts.
2. Fewer outstanding orders.
3. Elimination of expediting.
4. Improvement of accuracy of record and control information.
5. Improved accuracy for purchasing planning and scheduling.

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Possible Disadvantages/Difficulties
a) Because lead times have to be short and very reliable, suppliers and placed under pressure
which may damage supplier relations.
b) Low inventory levels place greater pressure on the purchasing function
c) Purchasing quantities are largely inflexible since the quantities are determined by the
system.
d) Too much reliance on purchasing information on the availability and lead times, which
influences the success of MRP system.
MANUFACTURING RESOURCE PLANNING (MRPII)
MRPII has been defined as ‘A system built around materials requirement planning and also
including the additional planning functions of production planning, master production
scheduling and capacity requirements planning.
MRPII has wider implications than materials requirement planning. MRPII is concerned with
virtually any resource entering into production, including manpower, machines and money in
addition to materials. The development of the MRP system into MRPII system has produced a
useful aid for the entire management of business.
DISTRIBUTION REQUIREMENT PLANNING – DRP

DRP is based on customer requirements at the point of use or demand. DRP systems collects
requirements from retailers consolidate the requirements at the wholesale level and finally
consolidate the wholesale level needs back to the central manufacturing facility. The idea is that
the requirement ‘pulls’ the product through the organization. DRP is employed by distribution
planners rather than production or manufacturing planners.
ABC ANALYSIS (Pareto analysis)

The ABC analysis is primarily aimed at providing management with information on the
importance of the different inventory items in terms of money value
ABC analysis is done by expressing the value demand and the quantity of inventory items in a
category as a percentage of the total value demand and the total number of items in the
inventory, respectively.
In any kind of stores operation, there will be a small range of high usage items and a large
number of low usage value materials. There would be a middle range items which, while not so
important, would still be of some financial consequences. A very wide range of small items,
insignificant from the financial point of view (but may be vital from an operational perspective)
would also be stocked.
In such circumstances, it is only common sense to pay more attention to the high usage value
items, controlling them very tightly and thereby controlling the majority of the working capital
invested in stocks.

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ABC analysis is based on the 80:20 rule or as is sometimes called the pareto principle.
Categorization of ABC analysis is as follows: -
1. Class A Inventory represents about 10% of the total number of items, but about 70% of
the total value. These are small in number, high in usage value, regarded as the ‘vital few’
from financial point of view.
2. Class B Inventory represent 40% of the total number of items, but only about 20% of the
total value. They are medium number, medium usage value, regarded as normal items.
3. Class C Inventory items represent 50% of all items, but have only about 10% of the total
value. They are high number, low usage value, regarded as the trivial many
ABC CLASSIFICATION PROCEDURE

The method for classifying A, B or C items may be divided into seven steps as follows:
1. List every item in the inventory on the basis of the stock item number.
2. Determine the annual consumption and value of every item.
3. Multiply every item’s annual consumption by its value.
4. Calculate the value of every item’s percentage share of the total inventory in terms of
annual consumption.
5. Choose the top 10% of all items, in terms of the highest percentage value and classify
them as A category items.
6. Choose the next 20% of all items, in terms of the highest percentage value and classify
them as B category items.
7. The remaining 70% of all the items, those with the lowest percentage value are then
classified as C category items.
Inventory management may use ABC analysis to plan inventory selectively and to set purchasing
priorities.
KIM LECTURE NOTES
EVENING CLASS
TOPIC 5: RECEIVING AND INSPECTION OF MATERIALS
Definition and importance of receipt and inspection
The management of recording and checking goods received by warehouse depend on the nature
of material and respective Stores receiving procedures. It is desirable to avoid a lot of paperwork
without undue risk of theft, fraud or mistake due to nature of goods
Physical examination, weighing, and counting of goods should be done in the most economical
way to avoid unnecessary delay or cost (e.g. by taking and inspecting samples of bulk supplies).
Sources of Stores Receipts:
a) Goods received from suppliers – based on purchase orders issued to suppliers

b) From production/ packaging dept – finished goods for dispatch to external customers
c) unused packaging materials ( returns)
d) From other departments – scrap material, goods issued in excess(returns)
e) and repaired components/ equipments

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Objectives of Inspection of Materials
In companies where large amount of materials are purchased for production, thorough inspection
of both quantity and quality of materials is very important and must be done.
The main objectives of Inspection are;
1. To maintain the quality standard of products by only accepting materials that meet
specifications prescribed in purchase orders.
2. To ensure Stores only receive the right quantity of materials
3. To ensure that SCM and Stores Dept eliminate any delivery irregularity.
Advantages of Inspection
When goods are inspected properly, the following advantages will be realized :
1. Maintenance of steady production of high quality products

2. Enhanced goodwill of company through royal customers patronage
3. Supply of consistent quality items will cut down machine break down repairs and
production rejects
4. Standardization of bought- out items is achieved
5. Cost saving in production as there will be few defective products
6. Increased sales and profitability due to supply of quality products to external customers.
7.
Considerations and Process of receiving materials
1. Unloading – before stores staff off-loads goods from a vehicle the following questions
should be asked :
• Is the store the consignee? – if delivery documentation is not clear

• Are the goods meant for that delivery location? Some firms have different delivery
points
• Are the materials hazardous to personnel in any way ? – unloading should not take
place until material safety and data documentation and equipment are availed.
• Can we avoid double handling ? – send goods directly to point of use
• Are materials urgently required ? – Goods packaging should indicate priority
markings and their time of delivery communicated in good time stores.
• What unloading or material handling method is most appropriate ? – stores should
determine the way delivery vehicle is to be unloaded and arrange for material
handling equipment
2. Time of deliveries – Suppliers should be informed of the days and times when stores will
be available to receive deliveries . This information can be indicated on the order
3. SCM should inform stores when order is sent to supplier- this is done by sending copy of
order to Stores
4. Suppliers Delivery Notes & Packing List – These documents gives a description of
goods , quantity

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involved, method of transport and date of dispatch .Supplier should inform receiving
stores before dispatch of goods that require off-loading at point of delivery
5. Carrier Consignment Note – where an independent transporter such as shipping line,

railway or road haulers are used, carrier sends consignment note in advance for
customer to make special arrangements for unloading to avoid demurrage charges due to
delayed off-loading of containers or wagons.
Process and Methods of Inspection
Quantity Inspection:
A typical process for checking quantity of materials or items delivered in Stores include the
following:
1. Before receiving, the stores keeper marries/ matches suppliers delivery note with the copy
of purchase order
2. Storekeepers ensures the quantity and description corresponds with the order by
weighing, counting or measuring using the appropriate equipment.
3. Where short delivery is received, goods are damaged or packages are missing this should
be indicated in the delivery documents and supplier informed immediately. Damaged
Goods or goods shortage Report is then prepared and sent to SCM and Finance depts for
further action.
Quality Inspection:
Receiving the right product into stores is of paramount importance in today’s competitive
environment.
To ensure that all incoming materials meet the quality specifications the following methods of
inspection may be used:
1. Sampling inspection – say 10% of incoming material is inspected; batches where samples
have no defects are accepted. If a batch sample has defects, the whole batch is inspected
100% or returned to supplier for replacement. Use of Sampling is only appropriate where:
a) Inspection does not involve destructive testing

b) The cost of accepting a defective item is not high
c) Materials are delivered in large batches/ bags or pallets
d) It is possible to take a truly representative random sample
e) It is possible to identify materials as acceptable or not through testing or
checkingspecs.
2. Inspection by Storekeepers - Stores Keeper is provided with relevant specs or samples

and necessary equipment for inspecting the materials
3. Inspection by Technical Staff – For items of technical nature inspection is carried out by
engineers or technical managers. Instructions should be indicated on purchase orders
which items should be inspected and approved by technical staff

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4. Inspection by Quality Assurance Department – Quality inspectors are authorized to

accept or reject materials and approve Goods Received Note. Goods awaiting inspection
should be segregated at the Stores Inspection Area and should not be issued for
production until they are checked by the QA Dept
5. Inspection at Suppliers Premises - In some organizations arrangements are made for
materials to be inspected at supplier’s premises/ factory and in some cases during the
various stages of production. This eliminates the need for materials to be held at the
Inspection Area and avoids double handling
Where materials are rejected ,the Inspecting staff indicates the reason for rejection and signs the
Goods Reject Note which is then sent to Finance and SCM dept for appropriate action.
6. Some Materials are held in Custom bonded warehouses awaiting inspection by Govt
officers or Agents ( KEBs) before materials are released for use in
production or the final Products are sold to external customers.
KIM LECTURE NOTES
EVENING CLASS
TOPIC 6: STOCK RECORDS AND INFORMATION SYSTEM
The Operations of the stores function and control of stocks cannot be performed efficiently
without capturing and maintaining stores records. Information system are generally employed for
the purpose of maintaining stock records and managing stock control through application of
electronic data processing/ computers.
Purposes of stock records and Information
The reasons for maintaining Stock records are:
1. To indicate the amount of stock of any item at any given time.

2. For use in tallying the physical stock and the Finance stock record balances
3. To provide a means of provisioning or determining how much to order to maintain
stocks at the required stock level.
4. For use in stock-taking where physical counting verifies the actual quantity of stock
balances
5. Helps Stores staff in finding the location of stocks to be issued for use/sale.
6. To serve as pricelist for sales when unit prices are indicated in the stock records
Manual stock recording system
Some stock records may be maintained manually in some business organizations.
Disadvantages of manual systems;
1. Manual systems tend to result to multiple copies of the same document being retained by
different people.
2. A number of files are maintained in different locations all of which must be kept to date

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3. Large number of staff are required to keep manual stock records

4. In multi- stores organizations there may be lack of cross-flow coordination in
management of common stock items thus preventing
a) Consolidation of orders
b) Central procurement
5. In adequate group stock information such that new orders are issued to suppliers when
there is surplus stocks in some branch stores
6. It is impracticable to analyze records and generate reports on supplier performance, stock
balances and standardization
7. It is difficult to use MRP system for inventory control when it is only manual stock
records that are available.
It is important to note that most forms and reports now computerized were at one time manually
produced.
Advantages of computerized Stock Recording System
1. Reduction of routine stores clerical activities thru automatic preparation documents e.g.
Purchase requisitions
2. Provision of up to date information for forward material requirement planning and for
outstanding orders
3. Reduction of stores staff and inherent administration costs
4. Computerized system can easily cope with increased Stores workload thru single entry at
first point of transaction
5. It is fast in calculating order quantities , EOQs and variation in purchase prices to come
up with standard prices of sale or issue for internal use
6. Cost savings due to improved stores recording and inventory control e.g. stock against
order analysis, ABC classifications, stock reports and minimization of stocks.
7. Reduction of time required to process receipts of materials in stores and customers
issues/sales thus freeing the stores manager time to do more strategic work like
measuring efficiency of stores operations and the health and safety of the stocks.
8. Minimize theft of stock and fraud
Application of information Technology
Computerized system should be comprehensive and versatile for use in all organization’s
operations giving maximum service rather than just to record stock levels and movements.
System should give exception reports for items not behaving to set patterns by indicating e.g.
slow moving items, overdue orders and allocated or reserved stocks. System should send alert
when it is time to re-order, quantity to order and from which supplier.
IT can be applied for the following purposes:
1. Generation of stock records for receipts , issues and stock balances

2. Stock valuation i.e. using LIFO, FIFO, Average prices
3. Check stock records and give discrepancy reports
4. Inventory planning thru exceptions reports

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5. Invoice control by ensuring materials are not paid for until they are physically
verified/counted
6. To report on surplus or redundant stocks
7. Financial control by reporting actual total stock values compared with optimum stock
limit
8. Automatic generation of purchase orders
9. Management of stock items on contract arrangements like consignment stocking or
calloff contract orders.
KIM EVENING CLASS NOTES
TOPIC 7: IDENTIFICATION OF MATERIALS
Definition and importance of Identification
The term materials refers to goods intended for use in production/ operation activities, finished
products waiting dispatch to customers, goods awaiting point of sale display, scrap and packages
held pending return to suppliers.
Letters and figures used for logical identification of materials are called Stores codes. Codes may
used based on the nature of items or the purpose for which they will be used.
Advantages of a coding system
1. Codes avoids repeated use of long description of items

2. Accurately identifies all individual items in stock
3. Prevents duplication when ordering and stocking of items
4. Assists in standardization and reduction of varieties of range of items
5. Forms a convenient basis for sorting and recording of items – e.g. during stock taking
6. Simplifies pricing and costing of products
7. Codes are used for locating items in the storehouse through indexing
8. Simplifies mechanical recording and data entry into computers
9. Assists in efficient procurement of products - e.g. tendering
10. Can be used as a basis of inventory control - e.g. ABC Analysis
Ways of Identifying Materials and Coding

Material Codes used are either alphabetical (e.g. ACFG), numerical (e.g. 05/06/1234) or alpha –
numerical (e.g. PE.7261)
Straight numerical codes may be referred to as Decimal systems with numbers being segregated
into groups of two or three (e.g. 832.617.903)
Interpretation of Codes
Total stocks is divided into main group, which are split into various subdivisions, and last digits
are for individual items as follows:
0 raw materials
1 spare parts
3 tools

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Selecting 0 – raw materials, the second digit in the code is:

00 timber 01
rubber
02 metals
Taking 02 metals, the third digit is added as follows:

02.0 ferrous metals
02.1 Non- ferrous metals
In the case of 02.1 non- ferrous metals, the fourth digit is then added as follows:
02.10 Aluminum
02.11 Lead
02.14 Copper
Taking 02.14 copper, the fifth digit is then added as follows:

02.1.1 Plate
02.14.3 Wire
02.14.5 Rod
Using 02.14.5 Rod, the sixth digit is added as follows:

02.14.50 square
02.14.52 angles
02.14.56 round
In the case of 02.14.56, copper rod round, the seventh and eighth digits are added to
indicate diameter as follows: 02.14.56.01- 1 mm diameter
02.14.56.02- 2 mm
02.14.56.08- 8 mm
With above complete significant coding, 02.14.56.08 would be interpreted as follows:

0 raw material
2 metal
1 non-ferrous
4 copper
5 rod
6 round
08 8mm diameter
Methods of Coding
1. Coding by nature of the item – e.g. raw material, tools , spare parts
2. Coding by the end use purpose – eg production and non-production items
3. Other basis of coding – e.g. reference to location , source of supply
4. Coding using Colour Marking – done for metals, cables and drums of oil e.g. green – iron
, red – copper, blue – steel, silver – galvanized
5. Coding using Technical spares for vehicles and machines – use manufacturers part
numbers as the last part of item code
6. Coding using Common user items – use parts numbers for nuts , bolts , bearing, and v-
belts not manufactured by supplier of main equipment

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Characteristics of an efficient Stores Coding
1. It should cover the whole range of stores items in use or likely to be used in future. In
first stage of coding 70 % of code capacity should be allocated for future use
2. The number of letters or digits should be constant for all items
3. Numbering should be arranged to allow future expansion or amendments without risk of
duplication or changing existing numbers
4. There is only one code for each item in the stock vocabulary/ catalogue
5. Units of issue are indicated
6. Item Description are brief and accurate, and specs indicated where possible
7. Code is easily understood by those who are to use it
8. Code classifications and location sections should be designed to meet the needs of
business organization
Preparation of Materials catalogues
The following are the procedure of preparing, issuing and maintaining materials catalogues:
a) Set up a catalogue library – containing copies of suppliers catalogue, parts lists , specifications
and list of established standards
b) Review current stock identification systems - stock particulars are recorded and copies of stock
taking sheets are obtained
c) Consult other departments like production, design , finance , purchasing and agree on the
general content of the materials catalogue
d) Prepare originating sheets - giving clear description ,sizes and specifications of all
items .Storekeepers add on sheets particulars of similar items which they stock but are missed out
in the sheets
e) Compilation of catalogue - restrict the number of varieties of items stocked by eliminating
alternatives and omitting items that are occasionally used. Codes are allocated with provision for
future adjustments and expansion.
f) Distribute catalogue- copies are issued to staff who really need them and a record is kept of the
distribution list. Read- only CD Roms can be adopted as the medium on which stores catalogue is
maintained.
g) Amendments to catalogue – codes added and removed on review of catalogue are published
yearly and issued in accordance with original distribution list
h) Treatment of items not in the catalogue – material items which are used occasionally or items
bought and used straight away should not be included in the catalogue.
TOPIC 8: ISSUE AND DISPATCH OF MATERIALS
The term ‘issue’ means supply of materials from the store to various departments in an
organization. Materials may be issued from stores on requisition for direct use or issued on loan
basis as tools and scraped after wear and tear.
Users of materials issued by stores will judge the efficiency of the stores management by the
standard of service provided by stores when issuing materials.

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Authorization of issues from stores
Materials in stock represent money and should not be misappropriated, wasted, or improperly
used.
Before materials are withdrawn from stores, there must be documents authorizing for the issue of
the materials through:
• Use of an issue notes signed by an authorized person. Storekeepers are given names,
designation and specimen signatures of all persons authorized to approve issue notes.
• It is desirable to restrict the issuing authority of different levels of management with
stock financial value limits
• Issuing authority may also be restricted for certain types of materials to officers in
respective departments
• Issues authorization should be appropriate to the needs of the organization. Authorized
signatories should not be too few or too many as to cause delay in issue of materials.
Process of Issuing Materials
In order to avoid delay of issuing materials in a busy stores, there must be procedure for smooth
flow of work through:
1. Arrangements to issue materials to some department only in certain hours in the morning
and to other departments in the afternoon
2. Storekeepers should try to work to the convenience of the material users to avoid
uneconomical peak loads of work or avoid waiting time for users collecting materials
from stores.
3. Materials in stores will only be withdrawn from stock in exchange of dully authorized
documents e.g. stores requisition, Issue voucher, Customer picking note etc.
4. To prevent deterioration ,materials received first should be issued first i.e. FIFO
5. Small quantities of materials should be issued from already cut pieces and not full
lengths
6. When you issue the last piece in stock, ensure that the stock card balance reads nil also.
7. Instruments and tools on loan should be issued to users in rotation to ensure wear and tear
is distributed evenly on all tools. Methods of issuing materials for internal use
Common issuing methods:
1. Issues on request - immediate issue of materials on presentation to storekeeper of

authorized issue note by hand. One copy of the Issue Note is passed to stock records
section to enter the quantity issued from stores, credit the stock control account and debit
cost to the chargeable code of user dept. 2 copy of issue note is handed to storekeeper as
record of material issued. 3 copy is returned to user department as evidence of material
received by department.
2. Scheduled issues to production – materials are issued in quantities and at times that
correspond with manufacturing programs
3. Imprest issues – Replacement of used materials in a substore to bring the imprest stock
to the set stock level e.g. materials issued to provide after-sales repair services to
customers

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4. Replacement issues – Operators may be required to present used tools and gauges before
new ones can be issued.
5. Loan issues -Items such as ammeters, surveyor’s chains, and instruments may not belong
to stores but are controlled by stores and are kept in stores when not in use. Stores
maintain a register showing items on loan/ borrowed and date of issue.
6. Allocated issues – Some materials may be delivered to stores on consignment basis for
use in production or reserved for specific engineering jobs. Storekeeper must ensure that
these materials are not issued to other depts.
7. Capital issues – It some cases stores use special form of issue notes that quote
capitalproject numbers for cost allocation of capital items
8. Bulk issues – low –value high- usage materials like industrial fasteners or cleaning
materials after issue from stores are placed in an open access location in user departments
for ‘free issue’ to staff as and when required.
Process of dispatching materials to external customers
In large warehouses there must be procedure for dispatch of materials to customers including the
following:
1. Finished products for customers – on receipt of sales advice note with details of
customers and address, storekeeper selects, packs material and prepares goods dispatch
note.
2. Items for repair and sale of scrap/ redundant materials- e.g. electric motors taken out for
repair or excess deliveries or rejected materials returned to suppliers are documented
through Gate Pass Note /Goods Return Notes and delivery notes
3. Sample issues to suppliers – samples issued to suppliers and returned are recorded to
establish balance of samples with suppliers at any given time.
4. Schedule for loading of vehicles with customers’ orders
5. Detailed transport plan for journeys to customers with timings and routing for each
vehicle and return loads
6. System of checking all materials due for dispatch are loaded and no unauthorized items
are put on the dispatch vehicle
Definition of Stock-taking
Stock taking is the complete process of verifying the physical quantities balances of the entire
range of items held in stock . stock audit is process of reconciling stock records when an external
agency is involved. No stock taking should take place without the knowledge of the stores
manager .
Purposes of stock-taking
Stock taking is the process of physical counting , weighing, or measuring all items in stock and
recording the results.
The Purposes of stocktaking are:

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1. To verify the accuracy of stock records

2. To support the value of stock shown in the balance sheet by physical verification
3. To disclose the possibility of fraud , theft or loss
4. To reveal any weaknesses in the system for the custody and control of stock.
5. To measure the efficiency of store keeping methods, stock control and procedures
through the number of surplus or deficiencies revealed through stocktaking.
Methods of Stock taking
There are two methods of stock-taking, Periodic and Continuous.
a) Periodic Stock-taking
The whole of company stock is physically counted at the same time at the end of a given period,
usually at the end of a financial year. For effective stocktaking, arrangements should be agreed
with all concerned including finance dept and external auditors. Stock taking sheets should be
prepared in advance. All personnel involved in stocktaking should be instructed on their duties.
Stock taking Procedure / arrangements should include the following:
1. Appoint one person to be in charge of the whole stock taking exercise

2. Close stores from normal business while stock taking is in progress
3. On the last day before stocktaking no issues should be made and no receipts of materials
should be allowed until stock-taking is complete.
4. Take stock of all items including packages , scrap , items on loan, and goods under
inspection
5. Stock-taking sheet should be numbered consecutively and issued to stock-taking staff. All
sheets must be accounted for at end of stocktaking.
6. Record separately damaged or used items
7. Stock-takers should work in orderly manner in a team of two people in their allocated
area, mark each bin or rack counted to avoid counting any item twice and ensure nothing
is missed.
8. Any items which are not property of the company should be marked or labelled in
advance
9. List in separate sheet items which have been received but not taken as stock ( waiting for
inspection)
10. Arrangements must be made to include in total list of stock all company items which are
not on the premises at the time of stock-taking e.g. returnable empties and pallets.
11. Return to stores all items issued on loan before the stock-taking begins
12. Indicate the method of counting i.e. weight , measurement for each item on the stock
sheet
13. Record physical quantities in terms of normal unit of issue e.g. pc , kg , set
14. The method of pricing of issues should be known in advance for stock valuation
purposes15. Goods in transit at the date of stocktaking must be taken accounted as stock
b) Continuous Stocktaking

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This method of physical counting is the same as for periodic stocktaking but with the following
differences :
1. There is no need to close the stores while stocktaking is in progress

2. Normal record posting of receipts and issues of stock can continue without interruption
by stocktaking
3. Stocktaking can be done by few trained stock-takers who may be independent of the
storekeeping operations.
4. Stocktaking results are entered into stock records and any discrepancies that arise can be
investigated in detail
5. Stock taking balances can be accepted for balance sheet purposes without waiting for
year-end physical counting.
Handling of Stock Discrepancies
Discrepancies arises when physical examination of stock fails to agree with the balances on the
stock records. If physical stock exceeds book stock balances this a surplus and if the physical
stock is less than book stock balances this is a deficiency. The Discrepancies are summarized to
show the net surplus or deficiency on each classification of stock .Approval to have
discrepancies adjusted in the stock accounts must be given by financial controller or MD.
Causes of Stock discrepancies
1. Bulk Breaking – i.e. making large number of small issues over a long period from bulk
stock using weight as measure
2. Errors or omissions or duplications in recording
3. Confusion on the unit of issue
4. Balancing discrepancy for another stock item in a neighboring location
5. Exceptionally large or unusual transaction on receipts , issue, return to stores notes
6. Discrepancy on last stocktaking on that location due to inaccurate counting. Deficiency at
last stocktaking may be cause of surplus
7. Issues or returns to stores outside normal working hours which were not documented
8. Theft or fraud of stock by storekeeping staff
9. Loss through weak stores physical security and stock-keeping procedures.

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Management of physical distribution and its function
Definition of physical distribution

Physical Distribution is the means by which products are physically transferred from the
producer to consumers in one or more stages i.e.:
Producer/Manufacturer  Distributor  Wholesaler  Retailer  Consumer
Producer/Manufacturer  Wholesaler  Retailer  Consumer
Producer/Manufacturer  Retailer  Consumer
Producer/Manufacturer  Consumer
Elements of physical distribution:
a) Packaging
b) Material handling
c) Storage and warehousing
d) Transportation
Role/Aim of distribution channel/ route management:
1. To make the product readily available to the consumers market it is aimed at.
2. To enhance the prospect of sales being made by making the product visible and
accessible to consumers
3. To achieve established level of service to customers
4. To minimize distribution and total cost of products
5. To establish a fast and accurate feedback of market information on distribution service
6. To achieve transporters and retailers cooperation in respect to minimum order sizes, unit
load types, vehicle sizes and delivery time constraints
Factors to be considered in the selection of distribution channel:
a) Physical nature of product determine transportation and storage

b) Physical characteristics of target market – i.e. whether to large and dispersed or small
and concentrated
c) Competitors strategy on product differentiation and market segmentation
d) Established distribution channel structures and business practices
e) Producer company size and distribution resources
It is necessary to take a strategic approach when choosing the channel best suited for product or
range of items to be distributed by undertaking the following steps:
a) Evaluating the importance of the distribution channels

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b) Decide on objective of the distribution function

c) Identify possible alternatives of channel networks
d) Analyzing the alternative channel structures
e) Choosing the optimum channel structure
f) Select and engage the channel stakeholders
Depot management i.e. depot warehouse location, decisions, size and number.
Functions of depots:
a) Act as storage point where safety stocks can be held

b) Acts tran-shipment point along the supply chain
c) Acts Break-bulk and order assembly facility
d) Act as insurance against production breakdown or road/ rail closures
e) Helps in marketing activities in that area e.g. product launch
Decisions relating to depot size and number depend on:
a) Existing and future demands on company products

b) Internal/ external factors that provide opportunities or constraints to distribution
c) Possible alternative distribution channels
d) Whether all customers can be supplied more efficiently and economically ex-works?
e) Whether single distribution hub or regional depots is better solution?
f) The optimum size of delivery area
Physical distribution planning i.e. strategic, tactical and operational plans
Strategic Decisions
Reviewed every 3 – 5 years on factors like warehouse technology, number, size and location of
existing depots
Tactical Decisions
Reviewed annually on factors like transport methods, vehicle fleet, delivery policies, customer
service levels and inventory levels.
Operational Decisions
Reviewed many times a year on factors like daily routing of vehicles, load planning and depot
restocking/ replenishment
Merits of own in-house and contracting out options
The decision on whether to use 3rd party distribution service or run own in-house distribution
operations must be evaluated very carefully.
Merits of in-house distribution operations:
1. Own producers have learned how to reach their customers more efficiently by selling a
range of products

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2. producers have operating cost advantage due to economies of scale and reduced costs can
be passed to customers
3. Producers have highly skilled staff to handle sales training and customer service avoid
disruption of distribution
4. Producers can advertise and promote their products more cheaply because they can
spread the marketing costs over a large amount of products
5. Producers can raise large amount of money to finance the distribution operations
6. Producers are able to survive changes in consumers shopping patterns by investing in
changes that are necessary to maintain profitability.
7. Own producers can use their resources and market power to fight competition more
effectively
Merits for use of 3rd party distribution:
1. Independent distributors can distribute products to consumers more cheaply due to low
overheads
2. They can devise new distribution formats that are more suited to changing consumer
environment
3. They are more efficient in delivery of small orders that are convenient to some
consumers.
4. Relieves producer from burdens of handling staff labour relations problems and legal
compliance to vehicle licencing and maintenance
5. Releases capital tied up in distribution infrastructure to be invested in core business of
company.
Managing Inventory in a distribution system
Distribution Resource planning (DRP 2)

DRP 2 is an inventory control and scheduling technique that applies MRP principles to distribute
products.
Dependent demand of a product at central warehouse is derived from the requirements of

regional warehouses i.e;
1. Emphasis in DRP is on scheduling rather than ordering

2. Replacement stock is ordered before consumers requirements during suppliers lead-time
period eat into the safety stocks
3. The projected distribution stock to be held is revised at the end of a given period
4. The planned order quantity becomes distribution requirement for the same period for the
distribution centre.

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Distribution operations
Customer order processing and service
The moment customer order is received it triggers other activities in the logistics and distribution
operations in fulfilment of customers’ requirements.
Reductions in delivery lead-time can contribute to distribution cost savings without sacrificing
customer service levels
Information technology
Information systems are important part of distribution operations. Information technology serve
the following purposes:
1. They serves as trigger mechanism by producing instructions and documents to activate

processing of orders and receiving of deliveries at the depot or regional warehouses.
2. They monitor and control distribution performance by ensuring that set cost and customer
service targets are met
3. They coordinate distribution functions and other key departments of a company
4. They link internal IT systems to suppliers , customers and 3 party distribution operators
rd
through EDI
Packaging and containerization
Packaging of materials is dictated by the demands of the markets and practical need for efficient
channel of distribution e.g. petrol is supplied in bulk tanks while milk is supplied to consumers
in packaged form.
Functions of packaging:
a) Containment – ensures product reaches consumer in a convenient form and quantity.

Packaging also overcomes handling problems of products
b) Protection – maintain product quality through retention of freshness and avoid risk of
contamination.
c) Product information – provides information on model, size, ingredients and instructions
on how to use.
d) Distinction of product – easy to identity product from rival products through color of
packaging and branding
e) Reduction of transport costs – weight of packaging affects transport costs if products are
be transported over a long distance or air freighted
Containerization

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The most popular means of transportation and handling of unit loads is the Container. Containers
are universally used based on its versatility in terms of commodities for which it can be used and
its intermodal capability of being transported by road, rail and sea.
Advantages of containerization:
a) Increased productivity due to efficient material handling process through single

movement of multiple products in a container
b) Standardization of handling equipment, storage and transport vehicles
c) Less damage of packages as containers are made of steel and are weather –proof
Disadvantages
a) Initial capital investment to buy containers is high

b) High replacement costs of tracking and repairing damaged containers
c) Imbalance of one –way traffic without return load and empty container movement
Vehicle types and selection
The type of distribution operations e.g. long- distance transportation and loads e.g. liquids, gases,
frozen foodstuffs and chemicals are very important in the selection of the right transport vehicle.
Types of Vehicles
a) Rigid vehicles – on four axles load are more maneuverable than articulated or trailer
vehicles
b) Articulated vehicles – these turn-table with semi-trailer are more efficient as they can
transport more weight load
c) Draw – bar trailer – Draw bar can be detached for off-loading at depot. Trailers corner
better than artics but are more difficult to reverse into confined space.
Fleet management in routing and load planning, vehicle acquisition, replacement, and
maintenance policies:
Routing and Scheduling:
Poor vehicle and load scheduling can cause disruptions of the distribution operations.
Good drivers and good load schedulers are invaluable and in the short-term irreplaceable.
Vehicle Acquisitions:
Acquisition of vehicles on contract hire or buying in 3rd party contract distribution packages in
form of dedicated services is now a familiar feature of present-day logistics and distribution
operations.
Advantages of using 3rd party specialist transport company:
a) No capital outlay to buy vehicles

b) Provision of specialist logistics and distribution services by professional transport
company.

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c) Economies of scale through use of contractor with extensive network of transport

services and depots
d) Transport and distribution costs are fixed in contract making it easier for accounting
Disadvantages
a) Loss of control of logistics operations by the client company.

b) Lack of contractor’s commitment to invest in building and equipment capacity due to
uncertainty of renewal of contract.
c) During recession own in-house transport management could be lower than the fixed
monthly cost paid to 3rd party transport company.
Performance measurement in warehousing and distribution
Introduction to performance measurement
Performance measurement is about efficiency i.e. getting things done in an economic manner and
effectiveness i.e. ensuring that warehousing achieves the desired stores objective of availing operations
materials at minimum total costs of handling and storage of stock
Setting and monitoring warehousing performance target:
1. Ensuring warehouse storage space is used efficiently

2. Keep material handling to minimum – avoid double handling
3. Ensure rotation of stock materials
4. Avoid personnel accidents in warehouse
5. Ensure optimum warehouse staffing
6. Ensure stores staff are trained on stores management , material handling and on fire &
safety
7. Use of effective stock control methods and material handling equipment.
8. Avoid material stock-outs.
Warehousing Performance assessment / evaluation
The following are techniques used for measurement of efficiency in warehousing:
1. Annual average stock levels

2. Number of issues / dispatch per year
3. Average number of stores employees per year
4. Annual stock holding costs of stores function
5. Proportion of slowing moving stock to total stock
6. Damage , loss, or deterioration of goods in stock
7. Value of discrepancy between stock balance records and physical stock level after stock
taking
8. Number of items requiring identification due to missing stock codes
9. Annual rate of stock turnover into working capital ( average annual value in stock to
annual issues )

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10. Stores service level of fulfilled requests at first pick.

11. Proportion of surplus or redundant stock to total stock
Techniques of Performance benchmarking service and cost standards
Calculating indexes of warehousing performance could be done using the following steps:
a) Select the warehousing variables to be benchmarked ( e.g. stockholding cost )

b) Determine how each variable is to be measured
c) Determine the relative measuring criteria for each variable
d) Calculate the performance index
Techniques:
Annual Stockholding costs index = Current year stockholding costs

Previous year stockholding costs
Annual Stock turnover = Current year stock turnover

Previous year stock turnover
Stores Service level = Current year performance rate

Previous year performance rate

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HPS 2205 : DISTRIBUTION AND WAREHOUSING

On completion of this course, students should be able to:

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Individual Work-based Assignment to be submitted to lecturer OR invigilator during CAT

5. Receipt and inspection of materials

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• Inter-modal transfers transshipments

Final end of semester Exam in week 16

The Course will be conducted using several approaches:

COURSE TEXT REFERENCES

• Attendance & Participation, Work-based Assignments, CATS: 30%

RECOMMENDED REFERENCE BOOKS

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JKUAT LECTURE NOTES

PSM 221: DISTRIBUTION & WAREHOUSING MANAGEMENT

TOPIC 1: STORAGE ACCOMMODATIONS

Disadvantages of Central Store

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1. High transport cost and

Purpose of Stores / warehouse

2. Lease/Hire of Storage Accommodation

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Factors that influence warehouse Operating Lease/Hire Decisions

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• If building is to be lighted and security installed

Factors that affect Location/Site of Warehouse

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The geographical area of customers - Optimum location warehouse is influenced by the

Benefits of a warehouse conversion

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Construction of Storehouse/ warehouse

Where to use multi-storey stores:

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• Overhead smoke detectors and overhead water sprinklers may be installed

Storehouse/ Warehouse Design

How to overcome disadvantages of using Stockyards

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KIM LECTURE NOTES

PSM 221: DISTRIBUTION & WAREHOUSING MANAGEMENT

TOPIC 2. STOREHOUSE OPERATIONS

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Straight Line Flow:

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Separate store for Chemicals/ Inflammable materials

Fixed Stock Location System

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Random stock Location System

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1. Result of over ordering – called surplus stock

Ways to minimizing occurrence of redundant stocks:

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3. Monitor changing patterns of consumptions in order to detect obsolescence early – e.g.

Disposal of Redundant Stock

The common methods of disposing redundant stocks are:

Security in Stores Operations

1. Warehouse and stockyards Building

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7. Statutory and material regulations

8. Inspection of Stores by External assessors